InvestSMART
Education

Hybrids

A hybrid security is the name given to a security that has combined elements of debt and equity. Convertible bonds and preference shares are examples of hybrid securities.
The most common type of hybrid security is a convertible bond. A convertible bond has debt and equity characteristics. It is essentially a bond – a debt security – but carries the option to convert the bond into a predetermined amount of equity in the issuing company. Usually the decision to convert the bond to equity is at the discretion of the bond owner.

The capital structure explains who gets paid first in the case of a company wind up. Generally, debt is paid off first before equity. Hybrids usually get paid after subordinated debt as they are securities with both debt and equity. They tend to fall under debt and above equity in the capital structure. This means that in the event of a wind-up hybrid investors will receive their money if there are leftover funds after all senior and subordinate debt is paid off to creditors.

 

Paid off first                                                                                                    Paid off last

Senior secured debt -> senior debt -> subordinated debt -> hybrids -> ordinary shares

Related topics

When you invest in an Active ETF you are investing in a portfolio of many different assets. The Active ETF is actively managed by a portfolio manager and investment team. You will receive distributions of the fund’s net income.

 

Active ETFs are actively managed by a portfolio manager and investment team to generate alpha and outperform a set benchmark. To invest in an Active ETF you will need to buy some units using your broker. You will also pay a management fee which is usually included in the unit price and in return for investing in the Active ETF you will receive distributions of the Active ETF's net income.

 

Investing in an Active ETF means that you will own units in the fund but not the underlying securities or derivatives themselves.

They provide access to a range of asset classes and investment strategies that non-institutional investors may not ordinarily have access to, for example international equities, fixed income securities and currency markets. By investing in an Active ETF/EQMF you can achieve a level of diversification that would normally be too difficult to realise investing in each asset individually. Active ETFs/EQMFs also have no minimum investment requirements which makes them more accessible. They benefit investors who prefer an active investing strategy and want their money to outperform the benchmark.  

 

Furthermore, Active ETFs/EQMFs are a way of investing in an actively managed fund without the hassle of the paperwork required by traditional unlisted managed funds. With no waiting times and the ability to choose which price you invest in the fund, Active ETFs/EQMFs make investing more accessible. Investing more money is as simple as purchasing new units. Investments in Active ETFs/EQMFs are more liquid than traditional managed funds making them a more flexible choice.

A traditional unlisted managed fund often has minimum investment requirements that an Active ETF does not have. Managed funds are not listed on the exchange, and thus require much more paperwork to invest in the fund. Active ETFs, on the other hand, can be traded easily through a broker. Active ETFs can be traded like ordinary shares unlike managed funds.

The increased paperwork associated with traditional unlisted managed funds means that you may have to wait before your money gets invested. Active ETFs make investing more accessible by allowing you to invest quickly and hassle free with the help of your broker. This also means that investments in Active ETFs are more liquid than traditional unlisted managed funds.

Nothing, they are different names for the same investment vehicle. They are also sometimes known as listed managed funds, exchange quoted managed funds (EQMFs) or quoted managed funds. 

An Active ETF is a managed fund traded on a stock exchange. They function like managed funds, but traded like shares which can be bought and sold during trading day on the stock exchange. Active ETFs are actively managed by fund managers to generate alpha and outperform relevant benchmarks.

Active ETFs will aim to beat the benchmark using a number of active investing strategies. They operate in a similar way to traditional managed funds but have the benefit of transparent, live intra-day pricing and market making ability which ensures liquidity 

Investors invest in the Active ETF by using a stockbroker as if they were buying a share. Similarly, liquidating the investment follows a similar process to selling a share. This means that your Active ETF can be monitored and reported like any of your other shares.

Active ETFs are similar to the passively managed ETFs. Instead of using a passive investment strategy mimicking an index or other benchmark, Active ETFs have a fund manager who makes active decisions about what to invest in. Active ETFs aim to beat the benchmark or index whereas ETFs aim to follow the benchmark or index as closely as possible. Whilst Active ETFs will try to avoid falls in the benchmark, ETFs will go down when their benchmarks fall. As a result of an active investing strategy, Active ETFs will have higher fees to pay for the skill and experience of the fund manager.

Active ETFs and ETFs share similarities in that they are both listed on the exchange and investments in them are made through purchasing units via a broker.