NEW YORK (TheStreet) -- The U.S. and Cuba took a major step toward normalizing relations last week, so the average retail investor may be wondering how to invest to benefit from expanded trade relations between the longtime enemies.
Here are ways to do it.
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The Herzfeld Caribbean Basin Fund (CUBA) , sporting a ticker that is sure to give it outsized attention, is a closed-end fund designed specifically to benefit from the thawing of trade relations with the island nation. The fund consists of 10 stocks from different industries that are likely to increase sales as economic activity expands with Cuba.
But beware of what you're buying: Don't rush to buy this fund just because it sounds like it makes sense. Changes in U.S. and Cuban economic activity are likely to be glacial. It's very important to understand not only what companies the fund is comprised of, but how it derives its value.
A closed-end fund trades on the secondary market, just as a normal stock does, and in doing so is subjected to being overvalued relative to its net asset value. What this means is it can trade at a higher price than the actual value of the assets minus liabilities within the fund. The Herzfeld Caribbean Basin Fund shot up dramatically when news broke of Pres. Obama taking steps to end the embargo, and then quickly found a price closer to reality.
Though it fell some 15% the day after Christmas, the fund is still priced over 16% to its NAV at a market price of $9.60 when its NAV valuation places it at $8.27 a share.
However, you don't have to own the fund itself to benefit from its holdings. Below are the 10 individual companies that have not experienced a commensurate increase in value to the Herzfeld Fund. Investors should consider owning them if they are bullish on Cuba for the long term:
1. Coca-Cola Femsa (KOF) : Coca-Cola Femsa is the largest franchise bottler of Coca-Cola trademark beverages in the world, delivering more than four billion unit cases a year. It services predominantly the Latin American market and will benefit from the sale of Coca-Cola products in the Cuban marketplace.