Today, I’ll be talking about realised gains and our impairment assessments.

PNB’s mandate is to enhance unit holders’ wealth. Maintaining sustainable and stable recurring long-term returns is key to achieving this. We do so by paying out realistic yields that reflect market conditions.

The way our funds are designed is not to take unnecessary risk, but to minimise downside as much as possible.

Income distribution of our funds are derived from realised gains (the profits we make from selling stocks), dividends we receive from stocks and other investment income for that particular financial year.

Our investments are also subject to impairment assessments at the end of each financial year, in line with PNB’s accounting policy of cost less permanent diminution in value. These are audited by independent auditors annually.

In years where markets are very challenging, stock prices fall, and impairment (paper valuation) can eat into how much we can pay out dividends.

For example, we made RM10 on an investment, but diminution of value of another investment of RM3, means from an accounting perspective we can only recognise RM7.

The diminution in value does not mean we incur a loss. Loss is only incurred when we sell stocks. But from a conservative accounting view, we must recognise the diminution in paper value.

This is very conservative, which means what is paid out as dividends are actual realised gains less diminution of value.

These are challenging times indeed. As with other major investors, PNB is not spared from the impact of tough market conditions. Last year, our domestic investments were impacted by FBM KLCI’s weak performance, which posted a fifth-year decline in the last six years.

That being said, recent efforts of diversifying our global portfolio have resulted in greater returns from our international investments. Which, in turn, has offset the lower returns from domestic investments, enabling us to generate sustainable and stable realised gains.

We are gradually building a sufficient level of recurring income, which is sourced from high dividend yielding stocks, real estate investment trusts (REITs), global real estate and fixed income instruments.

Despite this, I must caution that in this current environment where global businesses are forced to shut down and support the economy, the income from investments may be lower, though still recurring.

Tomorrow I’ll post the Bahasa version of this thread. Stay tuned.