Determining whether an investment is halal or not can be a difficult task.
To help with this problem, some asset managers in Canada and around the world have created Shariah funds and ETFs to allow investors to quickly determine if an investment is halal.
We’ll cover some of the best halal ETFs in Canada and discuss their features below.
Complications of Halal ETFs
Halal ETFs, designed to comply with Islamic principles, present unique challenges and complications when compared to conventional ETFs. Some of these complications include:
- Limited Scope for Diversification: Due to the exclusion of various sectors deemed ‘haram’ (e.g., alcohol, pork, gambling, financial services based on interest), the universe of investable stocks can be limited, potentially leading to lesser diversification.
- Complex Screening Process: The process of determining whether a business is halal is multi-faceted. It isn’t just about the core business activity; financial metrics, like the level of debt a company has, can also make it non-compliant.
- Dividend Purification: If an ETF inadvertently earns income from non-permissible sources, there’s a need to ‘purify’ these gains, typically by donating them to charity. Tracking and implementing this can be complex.
- Liquidity Concerns: Halal ETFs might have lower trading volumes than their conventional counterparts, leading to potential liquidity issues.
- Performance Variation: Due to the exclusion of certain sectors, Halal ETFs might not always mirror the broader market’s performance. They might underperform or outperform the general market depending on how excluded sectors are doing.
- Higher Costs: Due to the specialized nature of the screening and monitoring processes, management fees for Halal ETFs can be higher than conventional ETFs.
Best Halal ETFs in Canada
Since Canada is a pretty small market for Halal ETFs, I’ve included some American ETFs below as well.
- Wealthsimple Shariah World Equity Index ETF (WSHR.NE)
- SP Funds Dow Jones Global Sukuk ETF (SPSK)
- SP Funds S&P 500 Shariah Industry Exclusions ETF (SPUS)
- Wahed FTSE USA Shariah ETF (HLAL)
- Wahed FTSE USA Shariah ETF (SPRE)
1. Wealthsimple Shariah World Equity Index ETF
- Ticker: WSHR.NE
- Inception Date: May 12, 2021
- Assets under Management: $171.5 million
- Management Expense Ratio: 0.50%
- Annualized Yield: 1.43%
- Listed on: NEO Exchange
- Stock Price: $27.16
- YTD Return: 9.39%
Wealthsimple launched the first halal ETF in Canada fairly recently. The ETF invests in stocks globally and avoids companies that earn more than 5% of their income from alcohol, tobacco, pork-related products, weapons, conventional banking or insurance companies, and adult entertainment.
WSHR also avoids companies that have undertaken a lot of debt. The ETF has been certified by a team of Islamic researchers at Ratings Intelligence Partners.
WSHR is a decently sized ETF with a short performance track record. Unlike most ETFs in Canada, it trades on the NEO exchange, and not the Toronto Stock Exchange. Wealthsimple also uses a quantitative approach for managing risk with the ETF.
The ETF holds a large number of stock holdings and is well diversified from a geographical perspective.
As the only Canadian-listed halal ETF, WSHR is a great option for complying with Islamic law.
2. SP Funds Dow Jones Global Sukuk ETF
- Ticker: SPSK
- Inception Date: December 27, 2019
- Assets under Management: $127.72 million
- Management Expense Ratio: 0.59%
- Listed on: New York Stock Exchange
- Annualized Yield: 2.12%
- Stock Price: $17.72
- YTD Return: 1.49%
The SP Funds Dow Jones Global Sukuk ETF is the first of several US-listed halal ETFs that you can access on the US side of your investment accounts in Canada. The ETF’s mandate is to invest in accordance with Shariah law, following a global index.
SPSK has a fairly recent inception and is a small ETF in terms of assets. Since it has to be held on the US side of your accounts, fluctuations between the US dollar and the Canadian dollar will impact your total return.
The ETF pays a good dividend with monthly distributions. It comes at a slightly higher MER than WSHR. SPSK is well diversified in terms of both holdings as well as across geographies.
As a US-listed halal ETF, SPSK is a good option to consider.
3. SP Funds S&P 500 Shariah Industry Exclusions ETF
- Ticker: SPUS
- Inception Date: December 17, 2019
- Assets under Management: $311.97 million
- Management Expense Ratio: 0.49%
- Listed on: New York Stock Exchange
- Annualized Yield: 0.96%
- Stock Price: $32.9
- YTD Return: 28.99%
The SP Funds S&P 500 Shariah Industry Exclusions ETF is another option on the US side of your accounts. The ETF’s mandate is to invest in only S&P 500 companies that are Shariah-compliant.
SPUS is different from the other ETFs on our list because it focuses exclusively on US investments.
SPUS also has a fairly recent inception. The ETF is fairly large in terms of assets under management. Again, fluctuations between the US dollar and the Canadian dollar will impact your total return.
The ETF pays a lower dividend than SPSK, again with monthly distributions. SPUS comes with a relatively lower MER, but the mandate of the fund is limited to US stocks only.
If a US-focused halal ETF is appropriate for your portfolio in terms of diversification, SPUS is a great choice.
4. Wahed FTSE USA Shariah ETF
HLAL is another US-listed global halal ETF. The ETF’s mandate is to invest in large-cap and mid-cap Shariah-compliant stocks from the FTSE Global Equity Index Series.
HLAL has a lower MER than SPSK, the other global us-listed halal ETF on our list. This ETF is also relatively larger and comes with a slightly longer performance track record.
HLAL is also listed on the NASDAQ while the other US-listed halal ETFs trade on the New York Stock Exchange.
Currency fluctuations between the US dollar and the Canadian dollar will affect your total returns since this fund is US-listed.
HLAL offers a low dividend yield, and it pays out distributions only on an annual basis.
If the lower yield and rarer distributions do not concern you as an investor, HLAL is a good option to consider.
5. Wahed FTSE USA Shariah ETF
- Ticker: SPRE
- Inception Date: December 30, 2020
- Assets under Management: $69.78 million
- Management Expense Ratio: 0.69%
- Listed on: New York Stock Exchange
- Annualized Yield: 4.55%
- Stock Price: $18.13
- YTD Return: -2.62%
The last ETF on our list is slightly different in terms of investment exposure. It is a Real Estate Investment Trust (REIT) ETF that offers real estate exposure while remaining Shariah-compliant. The ETF’s mandate covers real estate on a global basis.
The ETF is small in size and has a very short performance track record. It pays a great dividend rate, with distributions going out on a monthly basis.
Since SPRE trades on a US exchange, it will have to be purchased in US dollars. Fluctuations between the US dollar and Canadian dollar will affect your total returns.
SPRE is the smallest ETF and most expensive halal ETF on our list.
As the only halal REIT, SPRE is a great option for adding real estate exposure to your portfolio.
How to Buy the Best Halal ETFs in Canada
The cheapest way to buy ETFs is from discount brokers. My top choices in Canada are:
- 105 commission-free ETFs to buy and sell
- Excellent customer service
- Top-notch market research tools
- Easy-to-use and stable platform
- Stock and ETF buys and sells have $0 trading fees
- Desktop and mobile trading
- Reputable fintech company
- Fractional shares available
To learn more, check out my full breakdown of the best trading platforms in Canada.
If you are looking to make sure that your investments adhere to Shariah law, halal ETFs are a great way to approach investing.
While WSHR is the only option available in Canadian dollars currently, US-listed options are always an option.
Combining a few of the above ETFs can allow you to build a fairly robust portfolio. Before choosing an ETF or any investment, make sure that they are a good match for your risk tolerance and goals and objectives.