Herzfeld Caribbean Basin Fund, Inc. (NDAQ: CUBA) shares are up sharply today on news that Fidel Castro has stepped down from Cuba’s top post. The fund is a non-diversified closed-end management investment company with a focus on investing in issuers located in Caribbean Basin countries, including Cuba. Obviously, any normalization of U.S.-Cuba relations would be a massive boost to the troubled Cuban economy which could be flowing in U.S. vacation dollars. In the past, the normalization of these relations seemed like nothing but a distant dream, but many are now speculating that this change in power could put a timeframe on the event. So, is Herzfeld worth watching?

The first thing to remember is that Fidel Castro’s step down from power does not necessarily mean that U.S. relations are imminent. After all, Fidel’s own brother Raul is the one that will be in power and there is no guarantee that he will do anything to mend relations with the country’s powerful neighbor. The good news is that many believe that the younger Castro brother will consolidate power and free him up to pursue soem kind of slow overhauls aimed at opening up the country’s closed economy and perhaps even its closed society. Indeed, Wall Street expectations proved to be very high today of an economic overhaul in the country at some point over the next few years.

There is also talk among U.S. politicians that changes be implemented back at home to encourage foreign travel and trade with the communist country. “We have had a bad policy for nearly 50 years for bad reasons that have nothing to do with Cuba,” said Democratic Representative Charles Rangel. Similar sentiment is shared by others who support lifting the travel ban on the country along with the trade embargo at some point in the future. After all, the U.S. trades freely with other communist countries like China with little regard for politics - why should Cuba be any different?

The second thing to remember is that this stock is extremely volatile as the company recently had a float of just 1.7 million shares and a market cap of $12.5 million before a rights offering doubled the number of shares. Additionally, the thin daily trading volume can also make swings much larger than they should be. Unfortunately, there aren’t many better options out there that are better exposed to Cuba in particular, which means that investors may have to stick with this stock for the time being. However, it may be wise to hold off on investing in this particular fund until shares return to normal levels.

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