Warren Buffett is back in the news—at 94 years old, he’s currently converting more Berkshire Hathaway (NYSE:BRKa) shares into Berkshire Hathaway (NYSE:BRKb) shares to donate, possibly preparing for the inevitable.
It’s a sad but foreseeable chapter for one of the greatest investors of all time. Meanwhile, Berkshire’s cash pile has soared to $325 billion, so interpret that however you will.
As for the rest of his estate, we’ve covered this before: 90% in the S&P 500 via an index fund, 10% in short-term Treasurys. It’s a bold yet sound asset allocation that I personally admire.
But let’s be honest: income investors aren’t going to love it. While I generally prefer total return strategies, I know many of you are chasing high yields.
So, here’s Buffett’s portfolio adapted for Canadian investors, reworked to deliver a 10% yield with monthly distributions via two ETFs from Global X ETFs.
90% in the S&P 500
Warren Buffett famously said never to bet against America, and when it comes to investing, the S&P 500 is the embodiment of that sentiment.
If you’re looking for higher yield from this index, a natural strategy is to sell covered calls—essentially monetizing its volatility into steady premiums. However, this approach comes with a trade-off: capped upside. Covered calls aren’t a free lunch.
You can mitigate some of this capped upside by introducing leverage. For instance, by leveraging up at 25% (1.25x), you can sell more S&P 500 calls and benefit from the increased upside potential, which helps offset some of the cap. Of course, this also heightens your downside risk.
This is exactly what the Global X Enhanced S&P 500 Covered Call ETF (NASDAQ:USCL) does. It holds another Global X S&P 500 covered call ETF (NYSE:XYLD) at 1.25x leverage, achieved using margin at institutional rates.
We’ve discussed this new breed of lightly leveraged ETFs before. Unlike the older 2x daily resetting variants, these don’t use swaps, making them suitable for long-term holding.
USCL’s strategy results in a high 11.64% annualized distribution yield as of January 10. Note that the covered call overlay is dynamic, meaning the underlying ETF doesn’t mechanically sell calls with the same strike price and expiry every month. This approach leaves less upside on the table but can cause fluctuating premiums.
It’s not a cheap ETF, though. The use of leverage incurs interest costs, reflected in the 2.11% MER, with an additional 0.04% TER from active trading. Still, for those chasing income, it’s a unique way to adapt Buffett’s 90% allocation for yield-focused portfolios.
10% in Short-Term Treasury's
The issue with allocating 10% to short-term Treasurys is that their yield is essentially just the current risk-free rate. While it’s safe and dependable, it’s not exactly going to turn heads or significantly boost your portfolio’s income.
To enhance this, we turn to covered calls—on Treasurys. Yes, that’s a thing, thanks to ETFs like the Global X Short-Term U.S. Treasury Premium Yield ETF USD (TSX:SPAY) (SPAY).
Here’s how it works: 90% of SPAY is allocated to an underlying Global X ETF holding 0–3-month T-bills, which safely earns interest. The remaining 10% is allocated to the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), creating a barbell strategy.
The 90% in T-bills sits securely earning interest, while the 10% in TLT generates additional income by selling covered calls. The high volatility of long-term Treasurys like TLT boosts SPAY’s yield, which currently sits at an impressive 7.82% as of January 10.
Of course, this strategy doesn’t come cheap compared to regular T-bill ETFs. SPAY has a 0.46% MER, with an additional 0.13% TER from the covered call overlay. But you get what you pay for—a safer Treasury allocation that still delivers meaningful income.
Putting It Together
As of January 10, a portfolio of 90% USCL and 10% SPAY gives you exposure to 90% S&P 500 and 10% short-term Treasurys, but with an 11.26% weighted average distribution yield.
That said, remember this is a pretty risky portfolio. The use of 1.25x leverage in USCL exacerbates downside risk, and the covered call overlay isn’t a true hedge against market declines. You’re trading upside potential for income, and that comes with its own set of risks.
Also, with high income comes high taxes. While most of these ETFs’ distributions are classified as capital gains and return of capital, I strongly recommend holding them in a TFSA to maximize tax efficiency.