SP Funds S&P 500 Sharia Industry Exclusions ETF (SPUS)

“The intersection of faith and capital turns out to be not exotic at all — it is simply a different frame for the usual question of which companies you own.”

What Sharia compliance means in practice

SPUS holds stocks from the S&P 500 but excludes entire industries that are forbidden under Islamic law and Quranic teaching. The principal exclusions are conventional alcohol and pork production, tobacco, casinos and gambling, weapons manufacture, and conventional interest-based banking (though some Islamic financial institutions and Sharia-compliant banks remain eligible). The fund’s prospectus lists the specific criteria and the screening process used to identify and remove violating firms.

This is not a recent invention. Islamic finance has been a functioning parallel system for decades, and Sharia-compliant investments — stocks and bonds screened for religious and ethical alignment — are a standard part of that world. A Muslim investor based in New York or London can now access such a portfolio through a simple, liquid ETF rather than through a specialist Islamic finance firm or a manual screening process.

The result is a reduced but still diversified basket. The S&P 500 has roughly 500 constituents; after Sharia screening, SPUS typically holds somewhere between 350 and 400 stocks, depending on which names fall into the excluded categories in any given period. The tech and healthcare sectors tend to be overweighted (because they contain few forbidden businesses), while consumer staples and industrials are underweighted (because they include more exclusions — alcohol, tobacco, defense).

The practical differences from the S&P 500

Because SPUS is not just the plain S&P 500 but a filtered version of it, its performance will differ from the broad index. In periods when the excluded industries are thriving, SPUS will lag. When they are not, SPUS may outperform or match the index. Over the long run, the relative performance depends partly on the economic cycle and partly on the specific valuations of the excluded names.

Tobacco and spirits producers have historically carried stable dividends and sometimes attractive valuations, so a pure S&P 500 fund that includes Philip Morris or Diageo will often outperform a Sharia-filtered version. Conversely, in periods when these sectors fall out of favour, the exclusion of them becomes a tailwind rather than a drag. There is no universal answer — the relative returns are contingent on what the market prices into the excluded sectors at any moment.

The other practical difference is that SPUS is a more transparent vehicle for someone seeking faith-aligned investing. Rather than doing a mental calculation of which companies violate their values or hiring a financial adviser to do the screening, the investor buys a single ETF and knows the screening has been done by a published process. That convenience and clarity matters to many investors, even if the long-term performance is not meaningfully different.

Who uses Sharia-compliant funds and why

The core audience is Muslim investors in predominantly secular countries — the United States, the United Kingdom, Canada, Australia — who want to grow wealth but not through businesses they regard as unethical or forbidden by their faith. For them, a product like SPUS removes the friction of either being left out of equity markets or having to engage in mental compartmentalisation.

But SPUS is not exclusively for Muslim investors. Some investors who do not follow Islamic teaching still find the underlying philosophy appealing: the exclusion of tobacco, gambling, and weapons is close enough to conventional ethical or environmental screening that SPUS competes with so-called ESG (environmental, social, governance) funds on some of the same turf. An investor who avoids tobacco or weapons on ethical grounds rather than religious grounds might be equally comfortable with SPUS.

That overlap between Sharia and ESG screening is real but imperfect. A strict Islamic screening might exclude conventional banks or interest-heavy real-estate companies that an ESG-focused fund would keep. Conversely, an ESG fund might emphasize carbon emissions or labour practices in a way that Sharia screening does not. They are different frameworks reaching some similar exclusions.

Costs and structure

SPUS is an exchange-traded fund, so it trades continuously on the stock market. The expense ratio is modest — typically in the 40–60 basis-point range — reflecting the fact that the fund’s holdings are rules-based and static; there is no active manager picking individual stocks, only a mechanical process of filtering the S&P 500.

The fund is highly liquid because it tracks a major index and is backed by a well-known sponsor. The bid-ask spread — the difference between the price at which you can buy and sell — is typically a few cents on a share price in the hundreds, making the transaction cost of entering and exiting the fund negligible for most investors.

How to research SPUS

Read the fund’s prospectus and screening methodology carefully — the specific industries and business types excluded are the first question to answer. Look up SPUS’s performance history versus the plain S&P 500 over different time periods to understand how the screening has affected returns. Check the current top holdings to see which companies make it through the filter. Compare the expense ratio to other Sharia-compliant funds if you are choosing between them, or to plain equity index funds if you are deciding between faith-aligned and conventional exposure. Understand that Sharia screening, like any screening, creates a tilt — your portfolio will be structured differently, with different sector weights and different exposure to certain risks. That is the point, not a flaw. As with any equity fund, the market price of SPUS fluctuates daily with the stock market; the screening is static, but the fund’s value is not.