BlackRock, State Street Want In on the Nasdaq 100. Can They Compete With Invesco’s QQQ?

Let’s make that a table for three.

After decades of near total dominance by Invesco’s QQQ, the Nasdaq 100 trade is getting some long overdue company. BlackRock and State Street filed to launch competing funds, curiously just one day apart, earlier this month, turning the lonely corner of the exchange-traded fund marketplace into a party of three. Sure, competing with one of the most successful funds of all time, the $426.6 billion Invesco QQQ Trust, is daunting, but if anyone can, it’s BlackRock and State Street, which both have significant backing and reach to support the new launches. The real question becomes: What will it take to replace the storied Qs at the head of the table?

“First off, we don’t know the expense ratio,” said WisdomTree’s head of equity strategy, Jeff Weniger, who runs a similar large-cap, tech-heavy fund. “We also don’t know whether or not the moment that it’s launched, if Invesco just matches [fees]. There’s a lot of game theory in this.”

Let’s Make This ExQQQclusive

QQQ first launched in 1999 as a unit investment trust, which required it to spend a significant portion of its revenue on marketing. It has since converted into a more traditional open-end fund and just recently lost its status as the only fund tracking the Nasdaq 100, possibly after a non-compete agreement lapsed. “Invesco’s conversion … could have triggered a revision of Invesco’s index licensing agreement with Nasdaq,” said Amrita Nandakumar, president of Vident Asset Management. “Invesco may have been motivated enough to push through the fund’s restructuring that it was willing to give up exclusivity.”

Moving forward, fees are likely to be a driving factor. The S&P 500 index saw a similar dynamic with State Street’s SPY, with lower-cost rivals chipping away at expense ratios over time, like BlackRock’s IVV and Vanguard’s VOO. “History certainly suggests that a fee-war is imminent,” Nandakumar said, adding that since QQQ is no longer a UIT, Invesco will be better positioned to compete on fees and generate additional revenues via securities lending.

While QQQ has the upper hand with institutional investors, BlackRock and State Street do have superior distribution power, especially across the financial advisor channel, and specifically in model portfolios, she added. “Were their new ETFs to be offered in models alongside other blockbuster core funds such as SPY or IVV, that could serve as a powerful way to steal QQQ market share.”

Invesco cited its long history and track record in a statement, adding: “There is only one QQQ.”

Them Fighting Words? WisdomTree, for its part, has been trying to tackle QQQ’s dominance from a different angle. “We’ve been trying to attack the Qs with one that’s called GGRW,” Weniger said, a mega-cap growth fund that doesn’t just stick to the Nasdaq 100. “From a game theory perspective, it’s probably better for us that BlackRock and State Street want to play, because now it’s requiring people to take another look,” he added. “We’re more than happy to see the big players duke it out.”