Catastrophe Bonds

Bonds are typically viewed as very conservative investments with relatively simple terms. However, the industry is quite complicated and offers some higher risk securities. For example, catastrophe bonds (or "cat-bonds") have normal cash repayments to lenders, except if a pre-defined catastrophe (hurricane, wildfire, earthquake, etc.) occurs. In this event, all bond cash flows cease. For obvious reasons, these are popular among issuers in the insurance industry, and the primary buyers are hedge funds (primarily due to the higher risk/return profile such bonds offer). See a related article here, Bloomberg.

ROE and Leverage

Return on equity (ROE) can be decomposed into three pieces, the so-called DuPont Identity: Net profit margin, total asset turnover, and the equity multiplier. The equity multiplier is a measure of leverage, so firms that add financial leverage (i.e., debt) to their balance sheet can increase ROE, as long as the product of the other two factors (i.e.,  return on assets) is positive. In the standard growth model for pricing stocks, this would generally have a positive impact on stock price, but note that it does add risk to the potential outcome, i.e., leverage. See article here, The Economist.