Invesco QQQ converted from a unit investment trust to an open-end fund on Dec. 22, 2025. Investors approved the change on Dec. 19, which also lowers the annual fee to 0.18% from 0.20%.
Restructuring the exchange-traded fund from a trust confers marginal benefits for fundholders: open-end funds can lend securities and reinvest cash to more tightly track an index. Both are common practices that may marginally improve the total return that an investor receives. The underlying Nasdaq-100 Index and the ETF’s replication method did not change, and Morningstar’s opinion of the strategy remains the same.
- Morningstar Medalist Rating: Neutral
- Process Pillar Rating: Below Average
- People Pillar Rating: Above Average
- Parent Pillar Rating: Average
The change culminates a monthslong effort from Invesco to restructure its largest ETF, requiring more than 50% shareholder approval. It does not represent a special rebalance nor a taxable event.
The fee cut is notable since relatively few ETFs are slashing fees these days, but at 0.18%, Invesco QQQ is still pricier than some rival ETFs in the large-growth Morningstar Category. For example, Vanguard Growth Index Fund ETF Shares VUG and Schwab US Large-Cap Growth ETF SCHG each charge 0.04%. Neither is restricted to hold only stocks listed on the Nasdaq exchange. Both hold many of the same companies as Invesco QQQ and earn at least a Morningstar Medalist Rating of Silver.
QQQ’s Previously Unique Restrictions
The outgoing UIT structure was a relic from the early days of exchange-traded funds. It enabled portfolios to trade on an exchange but came with some restrictions. Some restrictions were common among all early ETFs using the UIT structure, while others were unique to specific ETFs.
Among those, QQQ’s trust limited the ways that Invesco could deploy the revenue generated from its largest ETF. Much of its revenue had to be funneled toward its marketing efforts. The ETF went on to become the Official ETF of the NCAA, and a major sponsor of several marquee national and regional events, including Chicago’s ZooLights. 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.
The origins of this unique limitation stem from the ETF’s original intention to promote a then-burgeoning Nasdaq exchange. The Nasdaq-100 Index was designed in 1985 to showcase the 100 largest nonfinancial companies trading on its exchange.
The index has enjoyed incredible performance over its 40-year history on the backs of several high-flying technology firms like Apple AAPL, Nvidia NVDA, and Amazon.com AMZN. Invesco QQQ also enjoyed stellar returns since its birth in 1999, weathering several severe downturns to return 10.5% annualized through November 2025.
Invesco QQQ: Morningstar’s Take
The Nasdaq-100 Index is a flawed benchmark whose superb track record conceals holes in its construction.
The construction rules of the Nasdaq-100 Index, which this fund fully replicates, are borne out of Nasdaq’s desire to promote its exchange—not an investment rationale. The benchmark absorbs the 100 largest nonfinancial firms listed on the Nasdaq and weights them by market capitalization, with provisions to mitigate concentration. It excludes stocks listed on other exchanges, shrinking the pool of eligible stocks for no economic reason. Some large-cap technology stocks that otherwise fit the Nasdaq-100 mold, like Salesforce CRM and Oracle ORCL, are excluded for their New York Stock Exchange listing. Should one of the fund’s holdings leave the Nasdaq, this index would have to sell it.
Though not a tech strategy by design, pulling exclusively from the tech-laden Nasdaq makes this index look like one. More than half the portfolio consisted of tech stocks in December 2025. The communication and consumer cyclical sectors, both stocked with tech-adjacent companies, combined for another 30% of assets. These sectors tend to be more volatile than most. That can spell trouble during drawdowns, like when the index slid further than broader growth indexes in 2022.
The index weights stocks by market capitalization. This is a sensible decision. Market-cap weighting channels the market’s consensus opinion on each stock’s relative value. Large-cap stocks attract vast investor attention, so that opinion tends to be well-informed and new information is quickly priced in.
Cap weighting and a limited scope can make this index top-heavy, even with modifications designed to reduce concentration. It can enact special rebalances to diversify when needed. It did just that in July 2023, shrinking its seven largest holdings to 43% of the portfolio from 55%.
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