QQQ to Become an Open-End Fund

Who wants to be a unit investment trust, anyway?

Invesco finally got the votes it needed for its flagship $399 billion fund, QQQ, to be restructured from a unit investment trust to an open-end fund. The ETF had held several rounds of votes, though it only last week crossed the 51% shareholder approval it needed. For investors, the change will lead to lower fees, which are being reduced from 20 basis points to 18. And crucially for Invesco, it means a significant boost in annual revenue that until now had been off limits for the asset manager.

Oh, and it also means that shareholders won’t have to endure any more of the outreach blitz from third parties Invesco hired to encourage people to vote. Some shareholders (who presumably hadn’t voted) have been venting anonymously about the calls, comparing them to harassment, according to a report by the Financial Times. However, Invesco made clear in investor communications that once someone voted their shares, the calls would end.

“This [is] insane,” one Reddit user wrote. “I’ve had stalkers that are less invasive.” Yeesh.

Key to the Kingdom

A huge drawback to the dated unit investment trust model is that Invesco couldn’t use much of the revenue from the 26-year-old ETF for anything other than marketing. In proxy materials, the firm indicated it would dramatically reduce the advertising spend for QQQ, cutting it by at least half. (Expect to see fewer QQQ ads next year, sports fans.) Invesco, of course, is happy, with a planned 3 to 4 basis points, or more than $100 million in annual revenue, to be redirected. The reclassification allows Invesco to reinvest income and use securities lending, the company noted in an announcement. “We are proud to deliver a 10% reduction in fees to QQQ investors while creating more flexibility to utilize tools that could deliver better outcomes for investors,” Invesco president and CEO Andrew Schlossberg said.

QQQ has done well this year:

• The ETF, which tracks the Nasdaq 100, has returned over 20% year to date, while the S&P 500 is up over 16%.
• It has seen about $16 billion in net inflows so far this year, despite net outflows of around $1 billion in November, per Morningstar Direct. Over three years, it has taken in $50 billion.
• It’s the fourth-largest US ETF on the market, behind Vanguard’s $569 billion Total Stock Market ETF (VTI) and ahead of Vanguard’s $206 billion Growth ETF (VUG), according to VettaFi.

Herding Cats: If nothing else, the exercise shows how challenging it can be for an asset manager to corral retail investors. Everyone, apart from recipients of ad revenue, is probably relieved this saga is over, and the end of calls will provide some peace and QQQuiet.