Invesco Capital Management filed a preliminary proxy statement seeking to convert the Invesco QQQ Trust (QQQ) from a unit investment trust to an open-end fund structure that would allow the company to earn management fees for the first time.
The proposed change would enable Invesco Ltd. (IVZ) to collect a 0.18% unitary management fee from QQQ’s $352.7 billion in assets, according to the filing. Currently, Invesco receives only reimbursements for marketing expenses and administrative costs without profit, the filing states.
The conversion represents Invesco’s bid to monetize one of the market’s largest ETFs, which it currently sponsors but cannot profit from under the unit investment trust structure that dates back to the fund’s 1999 launch.
Despite the new profit opportunity, shareholders would see their expense ratio decrease to 0.18% from the current 0.2% maximum, according to the filing. Invesco expects to reduce marketing spending under the new structure, with such expenses coming from its management fee rather than direct fund reimbursements, the filing indicates.
The filing outlines three proposals requiring shareholder approval at a special meeting scheduled for Oct. 24, according to the proxy statement. First, shareholders must approve amendments to QQQ’s governing documents to change its classification under the Investment Company Act of 1940.
Second, they must elect nine individual trustees to replace the current bank trustee, the filing states. Third, they must approve an investment advisory agreement with Invesco, according to the proxy.
QQQ launched in 1999 as one of the earliest ETFs using a unit investment trust structure, which was common then but has largely been abandoned by newer funds, according to the filing. The proposed open-end structure would provide greater operational flexibility, including the ability to engage in securities lending and use custom redemption baskets.
The conversion would also subject QQQ to additional regulatory protections available to open-end funds but not unit investment trusts, according to the filing. Bank of New York Mellon would continue providing custodial and administrative services under the new structure.
The changes would not affect QQQ’s investment objective of tracking the Nasdaq-100 Index or create any taxable events for shareholders, according to the filing.