There is a whole class of securities that lie some way between bonds and shares, combining elements of an equity investment with elements of a fixed interest investment. Risk and return can be somewhere in between the two asset classes.

The advantage of hybrid securities compared to normal fixed interest securities is that income may carry franking credits and there may be some upside growth potential tied in with the share price.

Convertible Notes

Fixed income securities with various characteristics and the holder has an option to convert to ordinary shares in the issuing company at a fixed ratio at certain future dates. Designed to provide the security of fixed interest payments and exposure to a company's share price upside.

Exchangeable Notes

A note that is convertible into the shares of a company other than the issuer of the debt instrument.

Converting Preference Shares

A preference share is a share that is paid a fixed dividend before any other type of share. Dividends may be cumulative, which means that if for some reason no dividend is paid the company should add the missed dividend to obligations and repay it later, or non-cumulative where dividends can be missed at the discretion of the issuing company and APRA. Converting preference shares usually convert to a fixed dollar amount of ordinary shares (though this may be subject to certain limits) and thus the underlying share price is largely irrelevant. These securities tend to behave like bonds because the final payoff is known in advance (provided the company doesn't go broke).

Reset Securities

Fixed rate securities with the terms negotiated at preset intervals. Investors have the option to accept new reset terms or choose to decline the new terms and exit via a pre-defined conversion or exchange mechanism.

Tracker Convertibles

A general debt obligation of a company that "tracks" or is convertible to ordinary shares in a related company.

Income Securities

Perpetual floating rate notes paying quarterly coupons with the interest rate reset every three months, usually set in advance with a fixed margin above the cash rate.