Tony Dong, CETF®
Founder, ETF Portfolio Blueprint
Lead ETF Analyst, ETF Central
SPY and DIA remain unusual unit investment trust (UIT) ETFs, while QQQ’s December 2025 shareholder-approved conversion shows why issuers are increasingly leaving the legacy structure behind.
The first U.S.-listed ETF, the SPDR S&P 500 ETF Trust (SPY), was “born” on January 22, 1993. Unlike most of the more than 5,000 U.S.-listed ETFs that followed it, SPY also has something resembling a death date.
Under its trust agreement, SPY is scheduled to terminate on January 22, 2118, or 20 years after the death of the last survivor among 11 people named in the agreement, whichever comes first. In other words, one of the largest and most heavily traded ETFs has a lifespan partly tied to a group of millennials with birth years ranging from 1990 through 1993.
This oddity is a direct consequence of SPY’s legal structure and the regulatory environment into which it was born. An ETF was genuinely novel in the early 1990s. The Investment Company Act of 1940 had been written decades before anyone contemplated a fund whose shares could trade continuously on an exchange, while APs simultaneously created and redeemed shares in-kind using baskets of securities.
SPY consequently required exemptive relief from several provisions of the Act before the structure could work as intended. That required lawyers, regulators, exchange officials and asset managers to effectively design the modern ETF structure as they went. Among the people instrumental in getting SPY through that process was attorney Kathleen Moriarty, later nicknamed the “SPDR Woman,” who worked through the regulatory exemptions needed to get the product off the ground.
The solution was to organize SPY as a unit investment trust, or UIT. Unlike the open-end management investment company structure used by most ETFs today, a UIT is comparatively rigid. The SEC didn’t permit ETFs organized as open-end funds until several years later, and that subsequently became the dominant structure for new launches.
UIT ETFs haven’t disappeared completely, though. A handful of legacy products remain, including two of the industry’s most recognizable tickers. And until very recently, that group included an even bigger name: the Invesco QQQ ETF (QQQ). In December 2025, QQQ shareholders approved converting the fund from a UIT into an open-end ETF.
So, what exactly is a UIT, why are SPY and other ETFs still structured this way, and what did QQQ gain by leaving the club? Let’s take a look at one of the ETF industry’s oldest surviving structural quirks.
What Makes a UIT Different?
SPY’s job is straightforward: hold the stocks in the S&P 500 Index in substantially the same weights as the benchmark. But its UIT structure imposes some unusual constraints on how it accomplishes that job.
One of the biggest is dividends. When an S&P 500 company pays SPY a dividend, the trust generally holds that cash until its next quarterly distribution rather than immediately reinvesting it. That creates what’s known as “cash drag.” During a rising market, cash sitting idle doesn’t participate in stock-market gains, potentially causing SPY to lag an otherwise identical ETF that can reinvest dividends.
SPY also can’t engage in securities lending. Many modern index ETFs can lend shares temporarily to approved borrowers, typically institutions facilitating short sales or other trading strategies, in exchange for collateral and a fee. After costs, some of that can accrue to the fund and help offset its operating costs. SPY leaves that potential source of incremental revenue on the table.
There’s also less managerial flexibility. As a UIT, SPY does not have a board of directors, corporate officers or an investment adviser providing investment advice. Instead, the trust operates according to the rules established in its trust agreement, with the trustee administering the portfolio.
Therefore, SPY can’t decide that a stock looks expensive, temporarily overweight cash, add a security outside the index or otherwise make the kinds of judgment calls associated with active management. Of course, that’s largely the point for a passive ETF whose sole objective is to track the S&P 500.
None of these quirks makes SPY dysfunctional. With more than three decades of history and enormous trading volume, it has demonstrated that the UIT structure can track an index effectively. But they do create small structural disadvantages compared with newer open-end (and lower fee) S&P 500 ETFs.
Which ETFs Are Still UITs?
State Street’s formative role in kick-starting the U.S. ETF industry also means that SPY isn’t the only legacy product in its lineup operating as a UIT. A handful of the firm’s oldest ETFs retain the structure.
First and foremost is the State Street SPDR Dow Jones Industrial Average ETF Trust (DIA). Launched in 1998, DIA tracks the Dow Jones Industrial Average, the familiar 30-stock collection of U.S. blue chips selected by a committee. It charges a 0.16% expense ratio.
The Dow itself is something of a historical curiosity these days. Its 30 holdings provide considerably less diversification than the S&P 500, while its price-weighted methodology means a company’s influence is determined by its share price rather than its market capitalization. For passive U.S. large-cap exposure, there are also broader and cheaper options, including SPY itself.
DIA does have one interesting feature in the context of its UIT structure: it pays dividends monthly. That’s useful because one of the disadvantages of a UIT is its inability to continuously reinvest dividends received from portfolio companies. More frequent distributions can reduce the amount of time that cash sits idle before being passed through to shareholders, helping mitigate some of that cash drag.
Another legacy holdout is the State Street SPDR S&P MidCap 400 ETF Trust (MDY). Launched in 1995, MDY is essentially SPY’s mid-cap little brother and charges a 0.23% expense ratio.
There’s a neat indexing relationship here. The S&P 500, S&P MidCap 400 and S&P SmallCap 600 collectively form the S&P Composite 1500. In the appropriate proportions, combining SPY and MDY with an ETF tracking the S&P SmallCap 600 can therefore approximate the broader S&P 1500 universe.
But SPY, DIA and MDY are historical exceptions rather than a template for how ETFs are structured today. UITs helped get the U.S. ETF industry off the ground at a time when regulators and issuers were figuring out how an ETF could operate within rules written decades earlier. Subsequent regulatory developments made the open-end fund structure considerably easier and more flexible for ETFs to use.
Given the choice today, there are few reasons for an issuer launching a conventional index ETF to voluntarily accept the restrictions associated with a UIT. Open-end ETFs can reinvest dividends, engage in securities lending and generally have greater operational flexibility. In fact, some issuers have been moving in the opposite direction.
Rather than creating new UIT ETFs, they have converted enormous existing UITs into open-end funds, preserving the familiar ticker and investment strategy while shedding some of the structural limitations inherited from an earlier era of the ETF industry. And one of the biggest ETFs in the world did exactly that in December 2025.
What Happened to QQQ?
One of the most prominent members of the UIT club has already left. In the latter half of 2025, Invesco put a series of proposals to QQQ shareholders that would convert the fund from a UIT into the open-end structure used by the vast majority of modern ETFs. Shareholders ultimately approved the proposals, and on December 22, 2025, QQQ began trading under its new structure.
Some of the changes were immediately noticeable. QQQ’s expense ratio fell from 0.20% to 0.18%, although that still leaves it more expensive than its younger sibling, the Invesco NASDAQ 100 ETF (QQQM), at 0.15%. The conversion didn’t trigger a taxable event for QQQ shareholders, and the ETF continued tracking the same Nasdaq-100 Index.
Behind the scenes, however, quite a bit changed. The restrictions inherited from QQQ’s UIT structure disappeared. The portfolio gained the ability to reinvest income, engage in securities lending and use futures, while the new structure also introduced a board of trustees and an investment adviser. Investors also began receiving semiannual reports and summary prospectuses.
There was another important incentive for Invesco, and this one was considerably more commercial. As a UIT, QQQ didn’t have an investment adviser collecting a conventional management fee. Instead, its expenses were paid on an unbundled basis. Before the conversion, those included the trustee’s fee, Nasdaq licensing costs, marketing expenses, transfer-agent expenses and other operating costs.
Historically, Invesco as sponsor could be reimbursed for certain marketing expenses, but it wasn’t earning the kind of advisory profit available from managing an open-end ETF. Conversion changed that arrangement. Shareholders approved an investment advisory agreement under which Invesco became QQQ’s adviser and began charging a 0.18% unitary management fee.
Invesco now pays expenses such as marketing and the Nasdaq licensing fee out of that fee, meaning whatever remains after the costs of operating the fund can contribute to the adviser’s economics. For an ETF with $400 billion in AUM at the time, that’s a meaningful incentive.
Invesco itself acknowledged as much in its 2025 annual report, saying QQQ’s modernization deepened the company’s ability to generate new revenue and drive profitability. That said, interests weren’t necessarily opposed. QQQ shareholders received a lower expense ratio and greater transparency.
The Future of UIT ETFs
Could SPY and DIA be next? I wouldn’t be surprised. As of this writing, SPY and DIA have roughly $811 billion and $44 billion in AUM, respectively. Both also charge more than some competing open-end ETFs tracking similar market segments.
That creates at least some of the same ingredients that motivated QQQ’s conversion: enormous scale, a legacy UIT structure and the possibility of modernizing the fund while potentially improving its economics for both shareholders and the sponsor.
A conversion wouldn’t change what investors actually own, and QQQ provides the precedent. It kept its ticker, index exposure, trading history and tax continuity while changing the legal machinery underneath. Whether State Street ultimately decides to follow Invesco is another question.
But QQQ has demonstrated that one of the world’s largest legacy UIT ETFs can make the transition without fundamentally changing the investment proposition for shareholders.
About Tony Dong
Tony is the founder of ETF Portfolio Blueprint and the Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the New York Stock Exchange. He also currently writes freelance for MoneySense, U.S. News & World Report, Kiplinger, and 24/7 Wall St., and runs an investing-focused newsletter called The Dumb Money Dispatch with 3,300+ subscribers.
Outside of finance, Tony owns a small ranch in rural British Columbia, raising goats and chickens, and also volunteers as a wildland firefighter in his local community. His background includes service in the Canadian Armed Forces as a reservist and stints in corporate security.