Wahed FTSE USA Shariah ETF (HLAL)

The Wahed FTSE USA Shariah ETF (HLAL) is an exchange-traded fund that holds shares of United States companies whose operations and financial structures comply with Shariah law — the ethical and legal framework of Islam. It tracks a curated index of American large-cap stocks, excluding those involved in interest-bearing financial instruments, alcohol, pork products, gambling, and other activities prohibited by Islamic jurisprudence. For Muslim investors seeking exposure to US equities without compromising religious principles, and for non-Muslim investors drawn to its screening methodology, HLAL offers that exposure through a single traded security.

What the index includes and excludes

The fund follows the FTSE USA Shariah Index, maintained by the FTSE Group (part of the London Stock Exchange Group). The index starts with large-cap US companies and applies a two-stage screening process. The first layer removes entire sectors deemed incompatible with Shariah: conventional financial institutions (banks relying on interest income), insurance companies, weapons and defense contractors, alcohol and tobacco producers, casinos and gaming, pork-related food companies, and media or entertainment companies involved in forbidden content. The second layer applies financial tests: companies must maintain debt-to-market-cap ratios below specified thresholds, keep interest income below a minimum percentage of revenues, and avoid excessive exposure to speculative derivatives.

What remains is a subset of US large-cap equities whose core operations align with Islamic law. This typically includes major technology companies, some industrials and utilities, healthcare firms, and consumer companies not involved in prohibited sectors. The index updates membership quarterly, adding or removing companies as financial metrics shift. In effect, HLAL gives its holders a filtered view of the US equity market — not fundamentally different from general-market funds in concentration or volatility, but narrower in sector composition and philosophy.

How Shariah screening differs from secular ESG

HLAL is sometimes grouped alongside environmental, social, and governance funds because both filter holdings by ethical or values-based criteria. The resemblance is partly real: both exclude weapons makers, often screen on labor practices, and appeal to investors who care about what they own. But the logic is distinct. ESG frames screening around sustainability, corporate responsibility, and stakeholder welfare — secular framings rooted in modern sustainable-development thinking. Shariah screening flows from Islamic law itself: it reflects what Islamic jurisprudence forbids and permits, not primarily what maximizes ESG ratings.

This matters because it creates holdings overlap but not identity. A firm might pass ESG screens but fail Shariah screening (or vice versa). A company could excel on governance and still involve interest-bearing lending, disqualifying it for Shariah funds. The philosophical starting points are different, even when practical results sometimes align.

Who holds HLAL and why

The fund appeals primarily to Muslim investors in the United States and Canada who wish to invest in US equities while adhering to religious principles. This is a meaningful and growing cohort: estimates of the Muslim population in North America suggest tens of millions of believers, many with professional incomes and savings to deploy. For them, HLAL removes the friction of building a Shariah-compliant portfolio manually or choosing between withdrawing from US markets or compromising faith-based constraints.

Beyond Muslim investors, HLAL also attracts non-Muslim socially responsible investors who are drawn to its strict exclusion of interest-bearing finance, weapons, and vice industries. Some pension funds and institutional investors use it as a thematic expression of values-based investing. The fund has also served Muslims seeking exposure to US equities during periods when many were uncomfortable holding conventional US bank or insurance stocks, particularly after financial crises that renewed debate over usury and excessive leverage.

Costs and structure

HLAL charges an annual expense ratio of approximately 0.70%, which is mid-range for thematic or values-based ETFs but higher than broad US equity index funds (which often cost 0.03% to 0.10%). The extra cost reflects ongoing index maintenance, the specialist research needed to verify Shariah compliance, and smaller asset base relative to market-cap-weighted trackers.

The fund itself is a true ETF, not a note or structured product. It holds actual shares of its constituent companies, can be bought and sold on the stock exchange during trading hours just like a stock, and generates dividends from the underlying holdings. Those dividends must themselves be Shariah-compliant (interest income is excluded at the index level, so distributions should be clean of prohibited sources). The fund uses full replication, meaning it holds most or all of the index’s constituents rather than sampling, which should minimize tracking error relative to its index.

Research and how investors use it

Someone considering HLAL should understand that it remains a US large-cap equity fund: it carries the same market risk as any equity exposure, moves with US stock valuations, and is not a fixed-income or defensive vehicle. The Shariah screening does not lower volatility or provide downside protection; it only constrains the pool of companies held.

Investors typically research HLAL through its prospectus and fact sheet, both published on Wahed’s website, which clearly lay out the screening methodology and list the index criteria. The underlying FTSE USA Shariah Index is also documented by FTSE Group, so an investor can compare the index constituents against a general large-cap US index to see the style and sector differences. Over long periods, HLAL’s performance versus broad US indices should reflect those holdings differences: periods when financials or energy lead will see HLAL lag, while periods favoring technology or healthcare might see it outperform. Neither outcome is surprising or a mark of poor fund management; it is the price of the filter.

Real risks and limitations

The main risk unique to HLAL is index membership volatility. Because Shariah compliance is assessed by financial metrics (debt-to-market-cap, interest income ratios), a company can enter or leave the index when those metrics shift, independent of business fundamentals. A firm might be removed simply because a dividend increase, a bond issuance, or a change in accounting treatment pushed it over a threshold. This creates a small amount of unexpected turnover and can occasionally force the fund to exit a holding just as it becomes more profitable for Shariah investors.

A second risk is concentration. Because entire sectors are excluded, HLAL’s portfolio is narrower than a full US equity market. It overweights technology and some consumer segments relative to the overall market, and underweights financials, energy, and materials. This makes HLAL a less diversified holding than a total-market fund; an investor using it should be conscious that they are taking a thematic bet, not a market-neutral position.

Finally, the Shariah standard itself is subject to scholarly interpretation. Different Islamic scholars and screening organizations sometimes disagree on borderline cases. The FTSE index follows one widely respected standard, but other Shariah-compliant funds apply stricter or more lenient rules. An investor should verify that the fund’s specific screening approach matches their own understanding or that of their religious advisor.