Halal ETFs Compared: The Ultimate Guide (September 2024)

This is the definitive, always up-to-date post on Halal ETFs, covering all ETFs that list only halal stocks. You'll learn everything you need to know about Shariah compliant ETFs, including which ones to pick and which to avoid.

Let's get to it!

Why ETFs exist

Did you know that $10,000 invested in Tesla in 2013 would have netted you a cool $1,500,000 in 2020!

We've all heard quips like that — and then think "I'll have two of that, please! Here's $20,000!".

Just one problem there: That ship is long gone 🚢! For Tesla (at a $1 trillion market cap) to give you that kind of return, it'd have to become bigger than the entire world economy!

And for evey Tesla, there are hundreds of AEX, CFR and more … what are these, you ask? Exactly my point: companies from 2013, all now dead.

You can't just pick a random company and "hope for the best"!

You need to pick the right company. And picking the right company is hard work, and means toiling over financial statements, studying filings and doing all sorts of boring things.. Even then, nothing guarantees you'd catch anything remotely like a Tesla.

So what is one to do if they don't want to spend their days hunched over financial statements?

Diversify

Like grandma used to say, don't put all your eggs in one basket 🧺. Do this and you'll do well when the group of companies does well - but, critically, no single company can bring you down!

How do you invest in a bunch of stocks, I hear you ask?

That brings us nicely to our next topic: ETFs.

What's an ETF, anyway?

An ETF is a type of investment that lets you own a little piece of many different things at once. For example, an ETF might hold a bunch of different stocks, or bonds, or even gold. This way, if one of the things in the ETF does poorly, the others might do well and help balance it out. You can buy and sell ETFs just like you would any other stock -- but "inside" each ETF is a collection of lots of other assets.

In that way, buying a single share of an ETF is like buying tiny pieces of each of the parts of the ETF. These pieces aren't all necessarily the same size, and they also change with time.

ETFs change regularly (usually quarterly), but some (famously, the ARK family of ETFs) update as frequently as daily.

Comparing Halal ETFs

Up until just a few years ago, there were only 3 halal ETFs — any they all targeted different regions, so there wasn't much to compare. Now though, there are many more (although, halal ETFs remain much more expensive than non-halal ones).

So before diving into the individual ETFs, it's worth considering what criteria we'll use to decide between the different ETFs:

1. Performance (obviously). We need a way to measure the average performance of any given ETF in any given year. For that, we use the trusty CAGR metric (cumulative aggregate growth rate). Think of CAGR as the average yearly return for any given fund over a period of time. (We'll do this from the date the fund launches)

2. Top 10 holdings concentration tells us how diversified the ETF is. After all, if the the whole point of an ETF is diversification - we'd expect the Top 10 of a medium-sized ETF (~100 stocks) to represent a small part of the overall performance. Otherwise, we could just buy those stocks directly (and skip the fees)

3. Benchmark comparison: to see how the fund compares to the overall market. Most people use the S&P 500 - the list of 500 of the biggest US companies - as the default benchmark. We'll visually compare each of the funds to the S&P 500 to see not just the overall performance, but also the highs/lows (the "volatility). Unlike a roller coaster, here - the lower the volatility, the better. You may like the highs, but what goes up must come down, and those downs really test a man's mettle. Many end up selling out at the bottom — followed by a lifetime of regret. If we can get similar performance for less volatility, we should take it!

There we have it.

With our 3 criteria out of the way, let's rank the different halal ETFs.

Limited Options

A problem you'll immediately bump into when finding an ETF that's Shariah compliant to invest in is that there just aren't that many of 'em. These things are about as rare as a unicorn.

It gets even worse when you live outside the US, and don't have access to the full menu of ETFs.

We'll get to country-specific limitations towards the end so stick around. We'll also cover a pretty darn smart solution to this issue, you don't want to miss that bit!

With that out of the way, lets dive into each of the funds..

Overview of Halal ETFs

Here's a table showing a complete list of halal ETFs across different geographies, and across different segments of the market:

ETF	Title	Geography	Asset	Ex
ISDU	iShares MSCI USA Islamic UCITS ETF	US 🇺🇸	Equities	🇬🇧
SPUS	SP Funds S&P 500 Sharia Industry Exclusions ETF	US 🇺🇸	Equities	🇺🇸
HLAL	Wahed FTSE USA Shariah ETF	US 🇺🇸	Equities	🇺🇸
SPRE	SP Funds S&P Global REIT Sharia ETF	US 🇺🇸	Equities	🇺🇸
ISDW	iShares MSCI World Islamic UCITS ETF	World 🌍	Equities	🇬🇧
IGDA	Invesco Dow Jones Islamic Global Developed Markets UCITS	World 🌍	Equities	🇬🇧
WSHR	Wealthsimple Shariah World Equity Index ETF	World 🌍	Equities	🇨🇦
UMMA	Wahed Dow Jones Islamic World ETF	World 🌍	Equities	🇺🇸
SPSK	The SP Funds Dow Jones Global Sukuk ETF	World 🌍	Sukuk	🇺🇸
ISDE	iShares MSCI EM Islamic UCITS ETF	Emerging 🌍	Equities	🇬🇧

These halal index funds, also known as Shariah-compliant ETFs, provide investors with a range of options for ethical investing that adheres to Islamic principles. Each fund tracks a specific index or market segment, offering diversified exposure to halal investments across various geographies and asset classes.

Deep Dive

Now it's time to take a look at the different Halal ETFs available out there, and how they stack up based on the criteria we've set. We'll dive deep into every single one of these ETFs to understand what makes them tick, and wrap up with a summary capturing the pros & cons of each one.

ISDU / ISUS 🇺🇸

📖 Prospectus page

This is the 'OG' Halal ETF — launched all the way back in 2007. There are two flavors of this ETF, the ISDU flavor (in USD) and the ISUS (in GBP). Otherwise, they're identical.

ISDU is also part of iShares's collection of halal indices that includes ISDW (targeting the developed World) and ISDE (targeting Emerging markets). That's ISDU for US, ISDW for World and ISDE for Emerging. Smart! Unfortunately, it's all downhill from here.

Feast your eyes on this chart showing how ISDU has fared against the S&P500 (which it's supposed to be based on) over the past 15 years:

A 170.34% return may sound decent, but remember that this is over 15 years! The yearly return (or CAGR) is just 6.11% — compared to the S&P500's 8.27% over the exact same time period.

Also, the Top 10 holdings in this ETF represent a whopping 54.9% (!) of the fund — which is considered stupendously concentrated¹:

Overall, the performance of this ETF is underwhelming. The fact that it's domiciled in Ireland does make things better for foreign investors from a tax perspective, but that's little consolation for under-performance.

🧐 A quick note on MSFT - the top holding in this, and many other funds. It's considered non-compliant by many Shariah screeners due to it's revenue from gaming & advertising exceeding the acceptable threshold. Why the funds haven't updated their holdings to reflect this is beyond me.

Note for the advanced reader: We're considering growth in NAV (Net Asset Value) in the performance figures above, so the returns above includes dividends.

SPUS 🇺🇸

📖 Prospectus page

The (relatively) new kid on the block, SPUS launched Dec 12, 2019 — just as the ground underneath the markets was starting to collapse due to COVID-19.

Lets compare its performance to that of the S&P500 since inception:

That's more like it! SPUS actually outperformed the market during this period — resulting in a 15.59% returns vs. 12.35% for the S&P500 over the same period.

The Top 10 holdings represent 52.74%, still ridiculously concentrated — (but hey, better than ISDU):

To see the complete list of holdings, hit the "Show All" link above.

We'll discuss the reasons behind the difference in performance between ISDU, SPUS and the other funds. For now, let's continue with the remaining funds.

HLAL 🇺🇸

📖 Prospectus page

This ETF was launched mid-2019, by the team at Wahed (an investing app that caters to Muslims). It's also focused on the US market, so let's benchmark it's performance with the S&P500:

Once again, we have an outperformer — rising 14.59% ever year since inception vs the 12.65% of the S&P500 over this period.

Upon reviewing the Top 10 holdings for HLAL, we notice that there's still alot of concentration there at 52.87% -- worse than SPUS (but not ISDU):

The top holdings are similar to the other two, so not a whole lot of difference in real performance. Again, notice how big tech absolutely dominates these funds.

SPRE 🇺🇸

This ETF was started by Shariah Portfolio, the same company behind SPUS. Launched on December 29, 2020 this fund aims to provide halal exposure to the Real Estate sector. Here's how it's performed since inception:

It's underperformed the S&P500 by quite a bit since it started — with a 1.66% yearly return to the market's 11.38% over this period.

It'll shock you to know that the Top 10 holdings in this bad boy represent a whopping 75.51% (!). With such a high concentration, you'd need a legitimate reason to invest in the fund (and pay up the 0.59% expense ratio) instead of just buying the holdings yourself:

But why bother buying the holdings at all? For that miserable performance, you're better off stashing your money under your mattress and losing it to inflation instead. You'll still lose money, just slower.

ISDW / ISWD 🌍

📖 Prospectus page

Now, it's time to look at ISDW. This is the 3rd of the ISD's and it targets the 'Developed world' — kind of like an ISDU, but across the globe.

Let's take a look at performance vs S&P500:

Ouch! Just a 87.99% return over the full 15 years of it's existance, vs 1,156.51% (!) to the S&P500 — which makes you wonder why on Earth anyone would consider investing in the ISD series of funds. You get high expense ratios, poor performance and low liquidity: 3 reasons NOT to!

The CAGR is only worse, as you can imagine: 3.84% vs SPY's 8.36%.

The Top 10, although I'm not sure why I'm bothering with it:

Not much to say — at 38.64%, it isn't particularly horrible, especially in comparison to some of the others we've seen so far -- at least, in diversification terms.

Performance is just horrible, stay far, far away!

IGDA 🌍

📖 Prospectus page

This ETF was launched in January 2022 by Invesco, aiming to track the Dow Jones Islamic Market Developed Markets Index. It provides exposure to Shariah-compliant stocks across developed markets globally.

Let's look at its performance since inception compared to the S&P 500:

IGDA has underperformed the S&P 500 slightly since launch, with a CAGR of 6.65% compared to 5.62% for the S&P 500 over the same period. The Top 10 holdings represent 34.55% of the fund:

This concentration is fairly high, though not as extreme as some other halal ETFs we've seen. The holdings are dominated by large US tech companies, similar to other global halal funds.

IGDA has a relatively low expense ratio of 0.40%, making it one of the more cost-effective halal ETF options. Its global focus provides more diversification than US-only funds, though performance has lagged the S&P 500 so far in its short history.

For investors seeking broad developed market exposure in a Shariah-compliant ETF, IGDA could be worth considering, especially given its lower fees compared to some competitors. However, its short track record means long-term performance is still unproven.

WSHR 🌍

📖 Prospectus page

This ETF was launched mid-2021, by WealthSimple. It's listed on the Canadian NEO exchange, and meant to provide Canadians with exposure to Shariah compliant companies in "Developed" markets.

Let's see how it stacks up against the S&P500:

Performance isn't great -- with the yearly return at 6.63% vs 9.02% for SPY over the same time period.

Upon reviewing the Top 10 holdings for WSHR, we notice that it's the least concentrated of all the ETFs we've seen so far. At just 9.56%, it even beats the S&P500:

It underperforms the S&P500 but it's more diversified. Maybe worth considering if you have no other options, but I wouldn't phone home about it.

UMMA 🌍

This ETF was also started by Wahed, the same company behind HLAL. Launched on January 6, 2022 this fund aims to provide halal exposure to global stocks — similar to ISDW.

Here's how it's performed since inception:

(Note: We've added ISDW on the chart to compare performance since they share similar goals)

Wow.

Somehow, it's managed to perform substantially worse than both the SPY and ISDW, and by quite a margin. The yearly return for UMMA is -0.6% vs 6.63% for SPY over the same time period.

The Top 10 is also above the average concentration for the SPY, coming in at 40.62%.

SPSK 🌍

Another Sharia Portfolio fund, this was started in December 27, 2019 with the goal to provide investors access to the global Sukuk market. Notably, this is the only US-listed fund to provide access to Sukuk. (We'll talk more about what Sukuk are in a future post)

Here's how it's performed since inception:

Sukuk are generally considered to be less risky than stocks, but they also tend to have lower potential returns. As expected, you can see that SPSK is much less volatile than SPY -- the only problem with that of course is that it's dropping in a less volatile manner.

Somehow, this embarassment of a fund has managed to lose money since inception -- despite the "predictable" returns Sukuk promise. The yearly return for SPSK is -2.08% vs 12.32% for SPY over the same time period.

Here's what the fund holds:

Very diversified at just 20.6%, but that's little solace for investors given the dismal overall performance.

I feel sorry for anyone who puts money here; you're practically lighting the thing on fire.

ISDE 🏭

📖 Prospectus page

This fund was born along with it's brothers, ISDU and ISDW, on 7 Dec, 2007. It focuses on 'Emerging Markets', the politically correct term for countries that are 'less developed'. This principally includes all of the countries that aren't US/Europe — that's mainly China, India, Brazil and the Middle East.

The largest companies in these regions tend to be commodity-based, so they rely on extracting and processing natural resources. This means they're more exposed to fluctuations in the price of whatever the underlying commodities are (e.g. gold, aluminum, copper, etc).

Brace yourselves as we observe the performance of this abomonition since inception:

This is definitely the black sheep of the family — in the 15 years of it's existence, it's actually lost money -- to the tune of -1.49%/year! 🫢

For reference, the market gained 8.46%/year during that same period!

What sane person would put any money in this ETF, especially with the insane 0.85% expense ratio?!

I had to summon the energy to keep going — have a look the Top 10 holdings:

The Top 10 holdings represent a whopping 51.14% of the index … tisk, tisk! Bad performance and poor diversification. I really am starting to wonder why iShares even bothers anymore.

What an abominition of an ETF!

Halal ETFs in your country

Not all the halal ETFs we described above are available in all countries. In this section, we'll discuss the country-specific issues that relate to investing in halal ETFs.

The challenge with Halal ETFs in particular is that they typically trade in low volumes. When brokerage firms decide on which stocks to include, they typically use volume as a stand-in for interest. "Low volumes? Low interest — we don't need to list that", they may say.

The irony is that these ETFs holding some of the most liquid stocks in the world! (We discuss a brilliant solution we devised to solve this problem in the next section)

Halal ETFs in Canada

You should be able to access US ETFs through most brokers in Canada (e.g. WealthSimple, IBKR, etc). Just keep in mind that you'll need to pay a currency conversion fee when funding your account or withdrawing. That's because US stock markets only operate in USD.

Oh, and be sure to avoid CFDs. Those are by the near-unanimous conclusion of Muslim scholars, considered non-halal.

If you're trading in a non-registered investment account, the IRS withholds 15% of your dividends paid by US companies. You could also trade using your Tax-Free Savings Account (TFSA) to keep all the profits you make (since they don't incur capital gains tax)

If you have an account with a broker that doesn't support any of the halal ETFs we discussed above, then the next section is for you.

Halal ETFs in the UK

You should be able to access US ETFs through most brokers in the United Kingdom (e.g. FreeTrade, Trading 212, etc). Just keep in mind that you'll need to pay a currency conversion fee when funding your account or withdrawing (which can be hefty). That's because US stock markets only operate in USD.

If you have an account with a broker that doesn't support any of the halal ETFs we discussed above, then the next section is for you.

You could also consider signing up for a broker that offers USD accounts to international investors (e.g. Alpaca is one we always recommend — no affiliation, no kickback, they're just a good broker).

Which should I pick?

So after the deep dive you're probably thinking: "Ok, that was a lot of info. How am I supposed to decide on which one(s) to pick?"

The short answer is, if you're investing under $10k here are your choices:

• For US 🇺🇸, HLAL is the best choice overall — in terms of performance.

• For International 🌐, you're looking at WSHR — though you'd need to make sure your broker has access to stocks listed on the Canadian NEO exchange.

Halal ETFs are genuinely the best way for most people to start off, so it's highly recommended you stick to the choices above.

But what if you're investing more than $10k?

Well, then fees start to matter alot more. This is an even bigger issue with mutual funds, which can charge 1%+.

There's a better way we haven't discussed that offers better performance AND lower cost. So if you're planning on investing more than $10k, read on →.

FAQs

Q) Since SPUS is domiciled in the US, won't I owe more tax (vs. say, ISDU, which is domiciled in Ireland)?

A) Assuming you're a foreign (non-US) investor, yes. You'd be liable for 30% tax on SPUS/HLAL dividend returns vs. 15% on ISDU/ISDE/ISDW. The crucial point is that this is 30% of the dividend yield — itself only ~1%/yr. The end result is almost negligible — at(30% - 15%) * 1% = 0.15%. The performance difference is a much more important consideration. I've written a detailed article on tax for foreign investors here.

References

Footnotes

1. For reference, the S&P500's Top 10 (which many complain about being too concentrated) represent just ~25% ↩