Invesco is looking to convert the $358bn Invesco QQQ Trust (QQQ) from a unit investment trust to an open-end fund ETF that will reduce fees and put the fund under the supervision of independent trustees for the first time.
Invesco decided to make the switch to improve operational efficiency and place the trust under a more favorable regulatory structure, according to a preliminary proxy filing from the $2trn Atlanta, Georgia-based firm.
QQQ launched in 1999, when most ETFs were organized as UITs, rather than as the now-nearly universal open-end fund ETF structure.
See full story on the conversion here.
Both structures are regulated under the ’40 Act, but open-end fund ETFs can be managed by external advisers that will have access to management options unavailable to UIT managers, including the use of in-kind transactions and custom baskets of transactions. UIT funds are able to basket securities transactions only using components of the indexes they track, in the same weightings.
Conversion would also allow the Trust to take advantage of marketing and communication tools not open to UITs, including the use of shareholder report forms tailored for individuals or groups of shareholders, and the use of summary prospectuses rather than the full-length version.
It will also allow for securities lending and reinvestment of cash dividends prior to distributions, reducing cash drag.
“Most current rules that are designed to protect shareholders and generally improve the investment experience that apply to ETFs are written with open-end fund structures in mind and are not applicable or required for UITs (even UIT ETFs),” according to Invesco’s July 19 filing about the conversion. “Invesco believes that this provides an inherent value for shareholders.”
The conversion qualifies as a tax-free event for shareholders and will result in a drop in the Trust’s expense ratio from 20 basis points per year to 18, which could result in cost savings of approximately $70m to the fund, according to the filing.
Installing a board
The change will come with the establishment of a formal board of trustees to replace the single institutional trustee required under the UIT structure. The current trustee, Bank of New York Mellon, will no longer serve as trustee after the conversion, but will continue to serve its current additional roles as custodian, administrator and transfer agent for the Trust.
Under a board structure a single adviser – meaning Invesco, which will remain as sponsor – takes responsibility for managing the activities of the Trust, which pays the adviser a single all-in fee to cover the adviser’s operating expenses, which the board will then supervise and approve at regular meetings.
Election of a board will also take away from shareholders the ability to vote on changes to the governing rules of the trust and limit them to voting to support or remove trustees who take on responsibility for approving further changes to the operating rules and for reviewing and annual approval of the activities of the fund adviser.
Under the proposal a majority of the board must be made up of independent directors – specifically the same mix of directors who make up the board overseeing the rest of the 219 funds in the Invesco ETF Trusts fund complex.
Board membership, organization
Independent directors nominated as the board of the open-end version of QQQ include Ronn R. Bagge, 67, Todd J. Barre, 68, Victoria J. Herget, 74, Marc M. Kole, 65, Yung Bong Lim, 61, Joanne Pace, 67, Gary R. Wicker, 64 and Donald H. Wilson, 66.
Wilson will continue in his role of chair of the board of trustees. Lim will chair the investment oversight committee; Kole will chair the audit committee; Bagge will serve as vice chair of the board and chair the nominating and governance committee.
The sole interested trustee on the board would be Brian Hartigan, 47, who has been president and principal executive officer of Invesco ETF Funds since 2023.
Melanie Zimdars, 49, who has served as chief compliance officer to Invesco ETF funds since 2017, will take over that role for QQQ as well.
Trustees serve indefinite terms in their existing roles and, presumably, would do so if the conversion proposals are approved as well, according to the filing.
Invesco maintains two boards, one for open-end funds and another for ETF funds. The open-end fund board has, in the past, listed a mandatory retirement age of 75. Filings about Invesco ETF funds said the board leaves retirement decisions to the individual or the nominating committee and resists shareholder proposals that specific trustees should retire.
Board compensation
Compensation for board members is determined by a vote of the ETF Board itself; half of their compensation is divided evenly among all the Invesco ETF funds, the other half is divided among them based on the average net asset level of each fund. If the proposals are approved, the fund will be charged for trustee compensation based on the same model.
The proposal states that the Trustee’s annual fee will range from 0.04% to 0.10% based on NAV of the trust, with a minimum fee for individuals of at least $180,000.
No specific compensation levels have been set, but will be paid according to the same process used to set compensation for the Invesco ETF Fund board.
A prospectus filed March 21, 2025 for the Invesco Exchange-Traded Fund Trust listed compensation for an almost identical board ranging between $356,667 and $476,667 for the fiscal year ended April 30, 2024.
The board generally meets five times per year; it supports standing committees that include nominating and governance, audit and investment oversight.
