Quarterly Income Preferred Securities (QUIPS) have quietly maintained a foothold among income-focused investors for decades. As global interest rates shift and Australian investors hunt for yield, QUIPS are getting a fresh look in 2025. But what exactly are they, how do they work, and do they deserve a spot in your portfolio?
What Are QUIPS? Breaking Down the Basics
Quarterly Income Preferred Securities (QUIPS) are hybrid investment instruments—part bond, part equity—issued primarily by large financial institutions and corporations. They are structured to pay regular quarterly income, usually at a fixed or floating rate, and often come with certain tax advantages for non-US investors.
- Hybrid Structure: Legally, most QUIPS are junior subordinated debt, but they carry features similar to preferred shares.
- Regular Income: QUIPS typically pay interest or dividends every quarter—appealing for retirees and income investors.
- Long-Term Maturity: Most QUIPS have maturities of 30 years or more, though some are perpetual.
- Callable Feature: Issuers can usually redeem (call) QUIPS after a set period, often after 5 or 10 years.
In Australia, QUIPS are less common than traditional hybrids like capital notes, but are accessible via international exchanges or select managed funds and ETFs.
2025 Market Outlook: Policy Updates and Investor Demand
This year, several trends are shaping the QUIPS landscape for Australian investors:
- Interest Rate Environment: With the RBA holding the cash rate steady at 4.35% in early 2025 and the US Federal Reserve signalling a gradual easing, fixed-income markets are recalibrating. Higher starting yields for new QUIPS have made them more attractive than in recent years.
- Taxation Changes: While the US continues to withhold tax on QUIPS payments to non-residents, Australia’s double tax agreement can often reduce the rate. Investors should confirm fund-level arrangements for any managed products.
- Risk Appetite: As volatility in global equities persists, Australian investors are increasing allocations to hybrids and income securities. Some leading Australian super funds have increased their exposure to global hybrids, including select QUIPS, as part of their 2025 income strategies.
For example, the iShares International Preferred Stock ETF (which holds many QUIPS) saw a 12% uptick in Australian investor flows in Q1 2025 as retirees sought to diversify beyond domestic bank hybrids.
Risks, Rewards, and Real-World Examples
QUIPS offer a tempting yield premium, but they’re not without risk:
- Credit Risk: QUIPS are junior to most other debt—if the issuer gets into trouble, you’re behind senior bondholders.
- Interest Rate Risk: Because of their long maturities, QUIPS prices can fall sharply if interest rates rise unexpectedly.
- Call Risk: If rates fall, issuers may redeem QUIPS early, forcing you to reinvest at lower yields.
Consider the Citigroup Capital XIII QUIPS, which offered a 6.875% coupon. In 2022-23, its price was volatile due to US bank sector jitters, but in 2025, its yield-to-call sits above 6%, outpacing many comparable hybrids. However, during the March 2023 banking mini-crisis, QUIPS prices dipped over 10% in a matter of weeks—highlighting their equity-like downside risk.
For Australians, access is typically via US or global brokerage accounts, or through managed funds. Check for ASX-listed ETFs with global hybrid exposure, as these sometimes include QUIPS among their top holdings.
How Do QUIPS Compare to Australian Hybrids?
Australian investors are more familiar with listed hybrids like bank capital notes. Here’s how QUIPS stack up:
- Yield: QUIPS often offer higher yields than major Australian hybrids, but with greater complexity and currency risk.
- Liquidity: ASX hybrids trade in AUD and are generally more liquid for local investors. QUIPS may be less liquid and are usually in USD.
- Tax Treatment: Imputation credits apply to many ASX hybrids, but not to QUIPS. However, some international funds manage withholding tax for you.
It’s crucial to understand your risk tolerance and whether you’re comfortable with international market exposure and currency fluctuations.
Conclusion: Are QUIPS a Fit for You in 2025?
Quarterly Income Preferred Securities can add yield and diversification to an Australian income portfolio, especially for those comfortable with global investing and the nuances of hybrid securities. As always, consider them as part of a broader, diversified strategy—don’t chase yield at the expense of risk management.
