Investing in a Post-Fidel Cuba

Of course, trains can't cross the Straits of Florida, which is where Seaboard(SEB Quote), the fourth-largest holding at 6.61% of assets, comes in. It operates the largest fleet of container ships in the Caribbean.

Herzfeld also believes an end to the embargo would be a boon for cruise ship operators like Royal Caribbean (RCL Quote) and Carnival(CCL Quote), which represent 4.8% and 4.31% of assets, respectively. He says they generate about 50% of their revenue from the Caribbean, and he believes Caribbean receipts would double after the embargo ends.

Herzfeld's strategy involves more than just economic analysis, however; he also employs political savvy. "We are looking at which areas we should invest in and seek out Cuban-American leaders in those industries and try to negotiate joint ventures," he says. The fund manager anticipates that these leaders will be instrumental in rebuilding Cuba. He points out that Florida East Coast Chairman and Chief Executive Adolfo Henriques is a prominent Cuban exile who was named one of the 12 most powerful people in Miami by The Miami Herald.

Investors who want to buy the Caribbean Basin Fund now will have to pay up, however. Its shares are currently trading at a 102% premium to their net asset value.

Unlike open-end mutual funds, which issue and redeem shares once a day at their net asset value, closed-end funds issue a fixed number of shares that trade throughout the day on an exchange. So their prices can rise and fall independently of the value of their holdings.

Anyone who invests in the Caribbean Basin Fund now runs the risk that the shares' premium to net asset value may have fallen -- or even swung to a loss -- when they are ready to sell.