Invesco Doesn’t QQQuite Have the Votes for ETF’s Transition

The phone calls will keep coming for shareholders in one of the world’s largest ETFs, if they haven’t voted already.

Invesco is in the process of turning its flagship $400B QQQ fund from a unit investment trust to an open-end fund, and it needs shareholders’ proxy votes to do it. If approved, the change would also make Invesco the trustee, a switch from current trustee BNY Mellon, and approve an investment advisory agreement between the ETF and Invesco. Much of the fund’s fee revenue goes to BNY and Nasdaq, and about a quarter goes to its extremely generous marketing budget (hence its prominence placements in sports advertising like March Madness).

Invesco has long been sitting on top of a potential gold mine, without much of an adze.

Why Investors Care

Asking fund shareholders to vote on any proxy measure is an arduous process. And many may not care much whether Invesco can control where the fee revenue goes. But there are two big reasons why they would want to vote in favor of the modernization proposal:

• Invesco is floating a 10% fee reduction as part of the package, lowering it to just 18 basis points from 20.
• The calls and notices from third-party solicitors urging investors to vote will stop once they have cast that ballot, according to Invesco. That’s no small issue, as one MarketWatch columnist wrote that she’s been called at least two dozen times.

Try Again: The proxy process lets the ETF adjourn meetings to solicit and collect more votes, so it’s probably just a matter of time before the measure passes. According to Friday’s SEC filing, the proposal had support of 50%, though it needs 51% to be approved. Of those who voted, 92% supported the measure, which indicates that somewhere north of 54% of shares have cast votes. 

So, the calls will eventually stop for all shareholders, and people will likely see fewer QQQ ads soon. According to the proxy materials, Invesco plans to chop ad spend on the ETF by at least half. “However, Invesco believes that at the trust’s current size and scale, any potential negative impacts associated with less marketing of the trust will be more than offset by the benefits realized by shareholders through the lower expense ratio,” the firm said in the proposal.