That headline may surprise advisors and investors experienced with exchange traded funds, but thanks to a grassroots campaign, the popular Invesco QQQ ETF (NASDAQ: QQQ) is officially, well, an ETF.
Perhaps unbeknown to many market participants, QQQ – Invesco’s biggest ETF and the fifth-largest U. S. ETF overall – existed for more than 26 years as unit investment trust (UIT). Indeed, there are differences between UITs and ETFs, one of the big ones being issuers of UITs cannot reinvest dividends on behalf of investors. Overall, not much is changing with QQQ, which tracks the Nasdaq-100 Index, but the changes are notable for advisors and ETF nerds.
For example, QQQ’s conversion paved the way for Invesco to lower the fund’s annual expense ratio to 0. 18% from 0. 20%. Not a huge change, but noteworthy at a time when ETF fee cuts are increasingly hard to come by.
For those that need to save even more, the Invesco NASDAQ 100 ETF (NASDAQ: QQQM) is the place to be. Introduced more than five years ago as the lower-cost alternative to QQQ, the $70. 06 billion QQQM’s annual expense ratio is 0. 15%.
Some Interesting Tidbits About QQQ Changes
Again, QQQ’s UIT-to-ETF conversion, which was voted on by investors, isn’t earth-shattering news, but there are some interesting nuggets.
With QQQ previously structured as a UIT, Invesco was forced to spend a significant portion of the trust’s revenue on marketing. It’s how QQQ became "Official ETF of the NCAA" with its commercials basically ubiquitous during broadcasts of college sporting events, particularly March Madness. Some of that revenue was also used on localized campaigns, including Chicago’s ZooLights, as noted by Morningstar’s Zachary Evens.
Perhaps the real beneficiaries with the QQQ changes are Invesco and its investors because the issuer now has more control over the revenue generated by the ETF and it’s a sizable figure.
“Switching to an open-end fund likely allows Invesco to retain much of the ETF’s future revenue, and it’s not a small sum. Estimates place that revenue at around $150 million annually for the $400 billion ETF,” observes Evens.
Criticisms Likely to Stick Around, Too
QQQ’s conversion isn’t likely to do much in terms of the criticism lobbed at the Nasdaq-100 over the years. Naysayers believe the index was created as no more than advertisement for the exchange, later doing the same for funds like QQQ. That may be but no one can argue with QQQ’s long-term track record.
(Image: Morningstar)
One can only imagine what that chart would look like if the Nasdaq-100 Index allowed for NYSE-listed stocks, such as Oracle (NYSE: ORCL) and Salesforce (NYSE: CRM), to join the club and what it would like if the financial services sector wasn’t excluded. Something to ponder because NASDAQ-listed Coinbase (NASDAQ: COIN) and Robinhood Markets (NASDAQ: HOOD) aren’t QQQ/QQQM holdings. Still, QQQ has delivered the goods over the long-term and it’s now cheaper to own.