Valuing Potential Holds Using Target Yields

Introduction

Things have been a little gloomy lately in the Football Index world. To inject a bit of festive cheer, I thought I would try and bring a slightly more positive angle to things by sharing a different way to value potential holds on the Index using a combination of target yield and IndexGain’s brilliant xDIV metric.

A note on target yield

For those who are very new to this, yield is a simple way of expressing dividend income as a function of share price. The equation is simple: Annual yield % = dividend income divided by buy price. For example, a player who wins 10p of dividends in a season and cost £1.00 to buy has an annual yield of 10%. Simple!

As a community, we talk a lot about yields and rightly so – the current and future income generated by our bets is the very thing which gives them value. Despite this, there can be a tendency to view income yield as a “secondary benefit” to capital growth which is how many choose to play the Football Index game. Given what has happened to prices over the last few months however, the importance of dividend income has significantly increased to many.

But what should a Football Index trader’s “target yield” be? An impossible question to answer of course given that every person’s risk appetite will vary significantly. Given that level of risk should be directly linked to the desired yield, I tend to view it something like this:

This is of course a personal view; given that Football Index feels like a less stable product than it did six months ago, I expect other traders will now desire a yield nearer 15% – 20%, although I am not of that mindset.

For the purposes of this blog, I will demonstrate what a “true price” for many players on the index could be if 10% was the desired annual target yield and have also included 15% as a stretching option for the more conservative buyer.

A note on xDivs

One of the least well known and appreciated metrics available in the suite of IndexGain Pro reports is “xDivs” – a measure of implied dividends for every player on the Football Index Market. xDivs is a hugely helpful starting point for assessing the potential earning power of a player on the Index, using historical data to assess the dividends a player should have won based on their historic PB scores. For those who are familiar with xG (expected goals) in football statistical analysis, this should be a relatively simple concept to grasp.

Of course, xDivs is not an exact science and caution should be applied to the generated number.

Using xDiv and Target Yield to generate a projected “value price” for a player

In the report below, I have used a combination of historical xDiv and actual dividends won to generate a composite projection for the dividends a player may expect to win over the course of a season. This is only a starting point and common sense needs to be applied – some players are no longer in a PB league for example, some players are right at the end of their career. Good traders use data as a starting point for a decision, not as an instruction manual for buying blind. With those caveats safely out the way, I’ll get to the point…..

Using the powers of maths (as taught to an 11 year old level), we can rearrange our earlier equation to make buy price the output of our calculation: Value Buy Price = Forecast Divs divided by Target yield.

 

Top 30 Value Buy Opportunities

The table below shows the top “value opportunities” using this approach, with value buy prices based on both a 10% target yield and a 15% target yield. Mid-point pricing was used as a basis for the calculation and prices were accurate as of Tuesday 22nd December 2020.

436 players generated a “value buying opportunity” based on the Target10 methodology, 268 were returned if using Target15. Here are the Top 30 opportunities sorted by positive distance from target for the 10% target yield.

You may look at this list and dismiss some examples out of hand instantly. This is good! Simple data exercises such as this are the starting point of a more considered approach, not the final instruction of what to do next with your cash balance.

The point of this blog was not necessarily to highlight “buying opportunities” – this has to be a decision for you and you alone. But I hope that by reading this I have given you some ideas on a different way to value potential holds on Football Index. Happy Christmas!

 

 

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SDBDunwell
Written by SDBDunwell
Football Index Trader, part time gambler, part time FA referee, part time AV enthusiast. Paid to do something different entirely as a full time job. Views mine.
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