Default DRP Enrollment Could Shift Investor Income Strategies in Intelligent Investor ETFs

Background on the DRP Update

InvestSMART Funds Management Limited, the responsible entity for the Intelligent Investor suite of Active Exchange Traded Funds (ETFs), has announced a significant update to its Distribution Reinvestment Plan (DRP). Effective from 1 January 2026, new investors in the Intelligent Investor Australian Equity Income Fund, Equity Growth Fund, Ethical Share Fund, and Select Value Share Fund will be automatically enrolled in the DRP unless they actively choose to opt out.

This change marks a shift from the previous approach where investors had to opt in to participate in the DRP. The DRP allows unitholders to reinvest their cash distributions back into additional units of the fund, compounding their investment without incurring brokerage fees or needing to make manual reinvestment decisions.

Implications for Investors and Funds

For existing investors, there will be no change to their current DRP participation status. They will continue as before, either participating or not, based on their prior election. However, for new investors, the default enrollment means that distributions will be reinvested automatically unless they opt out through the registry provider’s online process.

This default participation could encourage a higher reinvestment rate among new investors, potentially increasing the funds’ capital base over time. It also simplifies the investment process for newcomers, who might otherwise overlook the option to reinvest distributions.

Governance and Operational Details

The DRP rules, as updated, grant InvestSMART discretion to vary, suspend, or terminate the plan at any time. The plan operates under the framework of the funds’ constitutions, the Corporations Act, and ASX Operating Rules. Units issued under the DRP rank equally with existing units and participate fully in future distributions.

InvestSMART will maintain separate plan accounts for participants and issue additional units based on the net asset value at the close of trading on the distribution record date. Fractional entitlements are rounded down, with any residual cash balance carried forward without interest.

Context and Market Considerations

Making DRP participation the default aligns with a broader industry trend encouraging reinvestment to foster long-term growth. For the Intelligent Investor ETFs, which focus on income, growth, ethical investing, and value strategies, this move could enhance compounding benefits for investors.

However, the impact on fund liquidity and unit issuance volumes will be closely watched. While reinvestment can boost fund size, it may also affect cash flow management and distribution policies. Investors who prefer cash income will need to actively opt out, which could influence investor behavior and fund dynamics.