Fidel Castro's Death Has CUBA ETF Flying Higher

Shares of the Hertzfeld Caribbean Basin Fund, Inc. CUBA are higher by more than 10 percent in pre-market trading Monday following news over the weekend of the death of Fidel Castro. Investors speculating that Castro's death could lead to a new era of prosperity in Cuba and a renewed spirit of cooperation and trade are piling into the CUBA ETF, but many of them may not know exactly what they are getting.

Cuba doesn’t have a stock market, so the CUBA ETF doesn’t actually own any assets in Cuba. The table below from the fund’s most recent annual filing indicates 56.3 percent of the stocks in the fund are American companies, while 0 percent are Cuban companies.

The fund’s largest allocations are mostly Caribbean cruise companies, such as Royal Caribbean Cruises Ltd RCL, and airlines with routes in the region, such as Copa Holdings, S.A. CPA.

Politics And Diplomatic Relationships

Despite not owning any Cuban assets, traders use the fund as a play on the U.S.–Cuba diplomatic relationship. The companies in the fund are considered to be ones that would benefit from increased trade between the two nations.

President Barack Obama has taken steps to normalize U.S. Cuban relations during his time in office by easing financial, travel and trade restrictions. However, President-elect Donald Trump has said that Cuba will need to be willing to negotiate for him to continue that spirit of cooperation.

“If Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the U.S. as a while, I will terminate deal,” Trump tweeted Monday morning.

Prior to Monday’s move, the CUBA ETF was down 5.3 percent in 2016.