Decoding Halal Investing: HLAL Vs SPUS For Your Shariah-Compliant Portfolio
In an increasingly interconnected financial world, the demand for investment opportunities that align with personal values and ethical principles is on the rise. For Muslim investors, this often means seeking out Shariah-compliant options that adhere to Islamic financial laws, avoiding practices like interest (riba), excessive uncertainty (gharar), and investments in prohibited industries such as alcohol, gambling, and conventional finance. Navigating this landscape can be complex, but the emergence of Halal Exchange Traded Funds (ETFs) like HLAL and SPUS has significantly simplified the process, offering accessible avenues for ethical wealth growth.
This article delves deep into a comprehensive comparison of two prominent Shariah-compliant ETFs: the Wahed FTSE USA Shariah ETF (HLAL) and the SP Funds S&P 500 Sharia Industry Exclusions ETF (SPUS). We will explore their structures, holdings, performance, and unique characteristics to help you make an informed decision for your long-term investment strategy, ensuring your portfolio not only grows but also remains true to your ethical convictions.
Table of Contents
- Understanding Shariah-Compliant Investing
- Introducing HLAL: The Wahed FTSE USA Shariah ETF
- Introducing SPUS: The SP Funds S&P 500 Sharia Industry Exclusions ETF
- HLAL vs SPUS: A Direct Comparison of Key Metrics
- Diversification and Investment Strategy with HLAL and SPUS
- Beyond the Numbers: Adherence to Shariah Guidelines
- Making Your Choice: Which ETF is Right for You?
- The Future of Halal Investing
Understanding Shariah-Compliant Investing
Shariah-compliant investing is a rapidly growing segment of the global financial market, driven by the principles of Islamic finance. At its core, it's about investing ethically, ensuring that one's financial activities align with moral and religious guidelines. This means avoiding investments in companies involved in activities deemed impermissible (haram), such as alcohol, tobacco, gambling, pork products, conventional banking, insurance, and adult entertainment. Furthermore, Shariah principles dictate that investments should be free from interest-based transactions and excessive speculation.
For many, this isn't just a religious obligation but also a commitment to ethical business practices and social responsibility. Halal ETFs play a crucial role here, as they provide a convenient and diversified way for individuals to invest in a basket of stocks that have been rigorously screened for Shariah compliance. These funds are managed by reputable bodies that ensure the underlying assets meet strict criteria, making it easier for investors to participate in the stock market without compromising their values. The rise of communities like r/HalalInvestor underscores the growing need for resources and education on Halal financial literacy and ethical business practices, covering everything from budgeting and saving to long-term investing.
Introducing HLAL: The Wahed FTSE USA Shariah ETF
The Wahed FTSE USA Shariah ETF, known by its ticker symbol HLAL, stands as a prominent option for investors seeking Shariah-compliant exposure to the U.S. equity market. Launched on July 16, 2019, HLAL is a passively managed fund designed to track the total return performance, before fees and expenses, of the FTSE USA Shariah Index. This index is part of the broader FTSE Global Equity Shariah Index Series, which has been specifically designed to serve as the basis for Shariah-compliant investment products. This commitment to a globally recognized Shariah index provides a strong foundation of expertise and authoritativeness for HLAL.
When you explore HLAL on platforms like ETF Database or Yahoo Finance, you gain access to vital information including its price, holdings, charts, technicals, fact sheet, and news. As of recent data, HLAL maintains a diverse portfolio with approximately 220 holdings. Its sector exposure reveals a significant, yet relatively balanced, allocation to technology stocks, accounting for about 36% of its portfolio. In terms of other key sectors, HLAL shows a distinct underweighting in communication services, holding only 1% compared to a higher percentage in other broad market indices. Conversely, it has an overweight position in the energy sector, with roughly 6% of its assets allocated there. This unique sector weighting contributes to HLAL being perceived as relatively more diverse compared to some of its peers, offering a different risk-reward profile for investors focused on ethical growth.
Introducing SPUS: The SP Funds S&P 500 Sharia Industry Exclusions ETF
On the other side of the Shariah-compliant ETF spectrum is SPUS, the SP Funds S&P 500 Sharia Industry Exclusions ETF. This fund is essentially a Shariah-compliant equivalent of the widely recognized S&P 500 index, focusing primarily on large and mega-cap U.S. companies. Its design involves applying stringent Shariah screens to the constituents of the S&P 500, excluding companies involved in prohibited industries and those that fail specific financial ratio tests, ensuring its compliance with Islamic investment principles. SPUS has quickly gained traction among investors looking for broad market exposure within a Shariah framework, embodying both trustworthiness and a clear methodology.
SPUS typically holds around 192 companies, making its portfolio slightly more concentrated than HLAL's. A notable characteristic of SPUS is its higher allocation to the technology sector, with approximately 50% of its portfolio exposed to tech stocks. This heavier weighting can be a double-edged sword, offering higher growth potential during tech booms but also increasing vulnerability during downturns in the sector. In contrast to HLAL, SPUS has a more substantial allocation to communication services, at around 11%, and a lower exposure to energy, at about 3%. Investors often consider going to the SPUS website to find their top holdings and understand the specific companies that make up this Shariah-compliant S&P 500 alternative. SPUS has also demonstrated a reasonably high Sharpe ratio, indicating a strong risk-adjusted return over time, which is a key metric for long-term investors.
HLAL vs SPUS: A Direct Comparison of Key Metrics
When considering an investment in Shariah-compliant ETFs, a direct comparison of HLAL vs SPUS based on their fundamental characteristics, sector exposure, and historical performance is crucial. While both are certified Shariah-compliant ETFs, their underlying indices and management strategies lead to distinct differences that can influence an investor's portfolio.
Portfolio Holdings and Overlap
One of the first points of comparison is the number of holdings each ETF maintains. HLAL, tracking the FTSE USA Shariah Index, typically has around 220 holdings, offering a slightly broader diversification across companies. SPUS, on the other hand, with its focus on Shariah-screened S&P 500 constituents, holds approximately 192 companies. While these numbers suggest a difference in breadth, it's important to note that, as reported by sources like ETF.com, "over 80 percent of both portfolios are the same." This significant overlap means that despite variations in the total number of companies, a substantial portion of the underlying assets and, consequently, the performance drivers, are shared between HLAL and SPUS. This commonality stems from both funds adhering to similar Shariah screening methodologies, leading them to invest in many of the same large, ethically compliant U.S. companies.
Sector Exposure Analysis
Sector exposure plays a key role in the performance and risk profile of any ETF, and this is where HLAL vs SPUS show more pronounced differences. Both funds have significant allocations to technology stocks, reflecting the dominance of the tech sector in the U.S. market. However, SPUS has a higher tech exposure at approximately 50%, while HLAL's tech allocation is around 36%. This difference can lead to varying performance, especially during periods of significant tech sector movements. A higher tech concentration in SPUS means it might experience greater volatility or higher returns depending on the tech market's direction.
Beyond technology, other sector weightings also differentiate the two. Communication services are significantly underweighted in HLAL, with it having only 1% exposure, compared to 11% in SPUS and even 10% in broader market indices like SPY (S&P 500 ETF). Conversely, HLAL is overweight in the energy sector, holding about 6% of its assets, whereas SPUS and SPY allocate around 3% to energy. This spread in sector allocation, particularly in communication services and energy, is significantly wider and can influence the relative performance of HLAL vs SPUS, offering investors different avenues for diversification within their Shariah-compliant portfolios.
Performance Trajectories and Risk Metrics
Historical performance is a critical factor for investors, though past results do not guarantee future returns. When comparing HLAL vs SPUS, data from January 2020 to a recent period shows interesting trends. Since January 2020, SPUS has seen a remarkable return of 99.37%. In comparison, HLAL was up 86.30% over the same period. For context, the tech-heavy QQQ (Invesco QQQ Trust) was up 118.62%, and the broader SPY (SPDR S&P 500 ETF Trust) was up 75.95%. This indicates that SPUS, with its higher tech exposure, has outperformed HLAL in this specific timeframe, aligning more closely with the growth seen in tech-heavy indices. It's also noted that SPUS has had a reasonably high Sharpe ratio, which is a measure of risk-adjusted return, suggesting that it has generated higher returns for the level of risk taken compared to some alternatives.
Investors can stay up to date on the latest price, chart, news, analysis, fundamentals, and use trading and investment tools by checking current and historical performance for Wahed FTSE USA Shariah ETF on Yahoo Finance, and similar platforms for SPUS. These platforms provide valuable insights into AUM (Assets Under Management), flows, costs, and even ESG ratings, offering a holistic view for informed decision-making.
Diversification and Investment Strategy with HLAL and SPUS
For long-term investors, particularly those new to the market, the question often arises: should I choose HLAL or SPUS, or perhaps both? Given that "over 80 percent of both portfolios are the same," a significant portion of your investment will be in shared companies regardless of your choice. However, the differences, particularly in sector exposure, offer unique opportunities for diversification. Investing in both HLAL and SPUS can indeed be a viable strategy to further diversify your portfolio, especially if you wish to balance the higher tech concentration of SPUS with the broader, more diversified nature of HLAL.
HLAL is generally considered relatively more diverse due to its lower tech exposure and different weightings in sectors like communication services and energy. This can appeal to investors who prefer a less concentrated bet on the technology sector. For those turning 18 and looking to start investing long-term, strategies like Dollar-Cost Averaging (DCA) into either SPUS or HLAL, or a combination, can be highly effective. DCA involves investing a fixed amount of money regularly, regardless of the asset's price, which helps mitigate risk over time. The r/HalalInvestor community is a great resource for learning about budgeting, saving, and ethical business, fostering financial literacy for those embarking on their investment journey. It's about building a robust, ethical foundation for your financial future.
Beyond the Numbers: Adherence to Shariah Guidelines
The core appeal of HLAL vs SPUS lies not just in their financial performance but, more importantly, in their certified adherence to Shariah principles. Both ETFs are rigorously screened to ensure that their underlying holdings comply with Islamic law. This screening process typically involves two main stages: industry exclusions and financial ratio screens. Industry exclusions prohibit investments in companies primarily engaged in activities like alcohol, tobacco, conventional banking, gambling, and adult entertainment. This is a fundamental aspect of ethical investing for Muslims, ensuring that their wealth is not derived from or supporting forbidden activities.
Beyond industry, financial ratio screens are applied to ensure companies meet specific criteria related to debt, cash, and accounts receivables. For instance, a company's interest-bearing debt might be limited to a certain percentage of its market capitalization, or its cash and interest-bearing securities might not exceed a certain proportion of its assets. These detailed guidelines are set by Shariah scholars and advisory boards, providing an authoritative and trustworthy framework for the fund's operations. This meticulous adherence to guidelines is what differentiates these ETFs from conventional funds, offering peace of mind to investors who prioritize ethical compliance as much as financial returns. The "Halal Guys" are pioneers of American Halal food, showcasing how adherence to Halal principles can extend to various aspects of life, including finance.
Making Your Choice: Which ETF is Right for You?
Deciding between HLAL and SPUS ultimately depends on your individual investment goals, risk tolerance, and preferred sector exposure. Both are excellent choices for Shariah-compliant long-term investment, offering diversified exposure to the U.S. market. However, their subtle differences can be significant for a tailored portfolio.
If you are looking for broader market exposure with a slightly more diversified sector allocation, particularly with lower concentration in technology and higher in energy, HLAL might be more appealing. Its tracking of the FTSE USA Shariah Index provides a distinct flavor compared to an S&P 500-centric approach. On the other hand, if you prefer an ETF that closely mirrors the performance of the S&P 500 but with Shariah compliance, and you are comfortable with a higher allocation to the technology sector, SPUS could be your preferred choice. Its historical performance since January 2020, showing a stronger gain compared to HLAL, might also sway investors who prioritize recent momentum, keeping in mind that past performance is not indicative of future results.
For those who wish to maximize diversification within the Shariah-compliant space, investing in both HLAL and SPUS could be a prudent strategy. While there is significant overlap, the distinct sector weightings can provide a more balanced exposure across different market segments. Before making any decision, it is always advisable to conduct your own thorough research, compare HLAL and SPUS ETFs on various metrics like AUM, flows, holdings, costs, and ESG ratings, and perhaps even consult with a qualified financial advisor who understands Shariah-compliant investing. Exploring the top holdings of each fund directly on their respective websites can also provide deeper insights into the companies you would be investing in.
The Future of Halal Investing
The landscape of Halal investing is continuously evolving, driven by a growing global Muslim population and an increasing awareness of ethical financial practices. The availability of sophisticated, certified Shariah-compliant investment vehicles like HLAL and SPUS is a testament to this evolution. These ETFs are not just niche products; they represent a significant step towards making ethical and religiously compliant investing accessible to a broader audience, empowering individuals to grow their wealth in a manner consistent with their values.
As the market matures, we can expect to see more innovation in Halal financial products, catering to diverse investment needs and risk appetites. The focus will likely remain on transparency, robust Shariah screening, and competitive performance. The success of funds like HLAL and SPUS highlights the strong demand for trustworthy and authoritative options in this space, reinforcing the idea that financial growth and ethical principles can, and should, go hand in hand. The future of Halal investing is bright, promising more opportunities for individuals to align their financial journeys with their deepest convictions.
Conclusion
In the dynamic world of Shariah-compliant investing, both HLAL and SPUS stand out as robust and reliable options for long-term growth. While HLAL offers a slightly broader and more diversified portfolio with a lower tech concentration, SPUS provides a Shariah-compliant gateway to the S&P 500, with a higher tech weighting and impressive historical performance. The significant overlap in their holdings underscores their shared commitment to ethical investing, while their distinct sector exposures offer avenues for strategic diversification.
Ultimately, the choice between HLAL vs SPUS, or even a combination of both, depends on your individual investment philosophy and goals. We encourage you to delve deeper into the specifics of each fund, utilizing resources like ETF Database and Yahoo Finance to analyze their current and historical performance, holdings, and costs. Share your thoughts and experiences with these ETFs in the comments below, or explore other articles on our site to further enhance your financial literacy and investment journey. Your path to ethical wealth building starts with informed decisions.
SPUS vs. HLAL: Which Halal ETF Should You Invest In?
SPUS vs. HLAL: Which Halal ETF Should You Invest In?
This is what gives me second thoughts about HLAL or SPUS & makes me
