(Bloomberg) — Owners of Invesco Ltd.’s famed tech fund QQQ voted to convert the product into an open-ended structure, a move that could unlock hundreds of millions in annual revenue for the asset manager.
Shareholders of the $402 billion Invesco QQQ Trust Series 1 approved changing the fund’s structure from a unit investment trust, which is a little-used structure dating back to the birth of the first exchange-traded funds in the 1990s, an Invesco spokesperson said Friday.
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Subject to board approval, Invesco will now lower QQQ’s expense ratio by two basis points to 0.18% given that the item, along with two others, were approved. Invesco expects QQQ to begin trading as an open-end fund on Dec. 22, according to a press release.
Invesco shares have surged by more than 50% since the asset manager filed its proxy statement with the Securities and Exchange Commission in mid-July in anticipation of Friday’s vote.
The technical tweak to QQQ has enormous consequences for Invesco. Chief Financial Officer Allison Dukes said on the company’s July earnings call that transforming QQQ into an ETF could benefit net revenue and adjusted operating income by about four basis points — or roughly $180 million at current asset levels, according to Bloomberg Intelligence’s Neil Sipes.
In its current investment trust format, Invesco sees virtually none of the substantial fee revenue that QQQ generates. With about $402 billion in assets and an expense ratio currently of 0.2%, a back-of-the-envelope calculation shows that QQQ generates roughly $800 million in annual fee revenue, data compiled by Bloomberg and Bloomberg Intelligence showed.
Currently, 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, while the rest is spent on marketing QQQ. But a conversion would allow Invesco to reorder the revenue breakdown.
Friday’s successful vote marks Invesco’s third attempt to meet the threshold needed to convert QQQ into the ETF structure. Earlier this month, the firm said in a Securities and Exchange filing that it had been “very close to that threshold,” with more than 50% of shareholders voting in favor of conversion.
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