It’s a quirk in the booming world of passive investing: Famed tech fund QQQ is the most profitable offering in the $11.7 trillion ETF industry, but Invesco Ltd. earns virtually nothing from running it. Now the asset manager is asking shareholders to change that.
Invesco filed a proxy statement with the Securities and Exchange Commission on Thursday asking owners of the Invesco QQQ Trust Series 1 for their blessing to convert it into an open-ended fund from a unit investment trust, a little-used structure dating back to the birth of the first exchange-traded funds in the 1990s.
It’s a seemingly small ask with enormous consequences for Invesco. With $355 billion in assets and a 0.2% expense ratio, a back-of-the-envelope calculation shows that QQQ generates roughly $711 million in annual fee revenue — more than any other ETF, data compiled by Bloomberg show.
But in its current setup as a unit investment trust, the bulk of that is divided between the fund’s trustee — the Bank of New York Mellon — and the provider of the underlying index, which is Nasdaq. As mandated by the fund’s prospectus, any remaining revenue must be spent on marketing QQQ.
That leaves essentially nothing for Invesco, the fund’s sponsor. Theoretically, that dynamic would change if shareholders approve the firm’s request. And that would be a win-win for both Invesco and QQQ holders, according to Bloomberg Intelligence.
