Funds are just baskets of stocks that other people choose for you. Some funds cater specifically to Muslim investors. Three of the largest of these funds are:
- Sharia Portfolio’s (SPUS)
- Wahed Invest’s (HLAL)
- Amana’s (AMAGX)
This article compares these funds using the following criteria:
- Their process for screening for Halal stocks
- The comfort level that Practical Islamic Finance has in their top 10 holdings, and
- The historical performance of each fund
Process for Screening for Halal Stocks
1. Sharia Portfolio’s SPUS
Sharia Portfolio excludes companies that are involved in alcohol, gambling, weapons, tobacco, adult entertainment, pork products, highly leveraged businesses, music, cinema or broadcasting, defense or weapons and credit cards.
They also exclude companies with a debt-to-equity ratio that is above 30%.
The fact sheet given on their site doesn’t actually reference the Environmental, Social, and Corporate Governance (ESG) impact that the companies are having.
ESG is an evaluation of a firm’s collective conscientiousness and the impact it has on everyone it comes into contact with including suppliers, customers, employees, as well as how ethically the company is managed. The author of this article considers all these factors to be very relevant when trying to ascertain if a particular stock is Halal to invest in.
2. Wahed Invest’s HLAL
This particular ETF excludes companies that have dealings with alcohol, firearms, impure food stock, adult entertainment, gambling, or tobacco.
HLAL also requires the company’s debt must be less than 33.3% of their total assets.
Like SPUS, according to their online fact sheet, HLAL doesn’t make any reference to ESG when filtering for Halal stocks.
3. Amana’s AMAGX
The Amana Growth Fund is different from the previous funds in that it often mentions ESG as a filter they consider when picking constituent stocks in their fund. Their screen excludes companies engaged in higher ESG risk businesses such as alcohol, tobacco, pornography, weapons, gambling, and fossil fuel extraction. They also look at ESG factors such as resource efficiency, community and labor relations, board composition, and business ethics.
From the aforementioned, PIF gives Amana an edge for their screening process compared to the previous two funds.
Practical Islamic Finance’s Comfort Level With Top 10 Holdings
The next factor is the comfort levels that Practical Islamic Finance has with each of the top 10 holdings that these three funds carry.
See summary comparison here.
Individual Halal reports are accessible on the Practical Islamic Finance website, and you can review them to make your own assessments at any time.
With the categories being “comfortable, questionable, and uncomfortable,” SPUS and HLAL are basically tied with the highest percentage of “uncomfortable” companies in their top 10 holdings, while AMAGX has the highest percentage of “comfortable” holdings in their top 10.
In the end, Amana comes out on top again, followed by Sharia Portfolio in the second place and Wahed Invest in last place.
The third category for analysis is the returns that each fund achieved, and for objectivity this analysis is being made based on numbers from an unrelated party (John Hancock Investment Management), rather than the funds’ published numbers.
If you had invested $10,000 on January 1, 2020 in each of the funds we’re comparing (including the S&P), by August 12, 2021 you would have the following balances:
- SPUS – $15,013
- HLAL – $14,315
- AMAGX – $15,828
- S&P – $13,961
All three of these funds beat out the S&P, but Amana performed the best, Sharia Portfolio came in second, and Wahed Invest third.
Amana does have a 1% management fee compared to Sharia Portfolio and Wahed Invest which have a 0.5% fee. Nevertheless, given the above analysis, PIF gives Amana the top spot with Sharia Portfolio coming in second and Wahed Invest in third.
Disclaimer: It’s important to remember that none of these funds, as of the date of publishing this article, are associated with Practical Islamic Finance in any way. Also, nothing in this article is meant to be understood as investment advice. Make sure you do your own due diligence before you make any investment decisions.