Convertible securities hedge funds: Generally look to purchase the bonds or preferred securities and sell common shares against these long positions. The intent is to hedge interest or dividend paying securities with low or no dividend common shares. In the event of a default the bonds and other securities have priority to the common shares. Also, the bonds or preferred stocks usually generate positive cash flows whereas the short positions are generally not responsible for dividend payments. Therefore the fund should have a positive cash flow and protected by relative Seniority position in corporate securities. These funds also use warrants and options as portfolio instruments.