Why the "Halal" S&P 500 Has Outperformed the Regular S&P 500

Why the "Halal" S&P 500 Has Outperformed the Regular S&P 500

Beyond the standard S&P 500, there's a lesser-known Sharia-compliant version — the S&P 500 Sharia Industry Exclusions Index — tracked by the ETF ticker SPUS (SP Funds S&P 500 Sharia Industry Exclusions ETF). Despite its narrower stock universe, SPUS has outpaced the mainstream S&P 500 ETF VOO across every recent time horizon: 26.3% vs 20.3% over the past year, 22.5% vs 21.0% annualized over three years, and 14.7% vs 12.8% annualized over five years.

Halal investing screens out companies whose core business or financial structure conflicts with Islamic law. Excluded sectors include financial institutions like banks and insurers (due to interest-based income), entertainment such as movie theaters and conventional hotels, pork-related businesses, "sin" industries like tobacco, alcohol, and gambling, and weapons manufacturers. Beyond industry type, companies are also screened on financial ratios — for instance, debt-to-assets above 33%, or interest income exceeding 5% of total revenue, can disqualify a stock. As a result, familiar S&P 500 names like Berkshire Hathaway, JPMorgan Chase, Netflix, Disney, McDonald's, Philip Morris, and RTX are all excluded, leaving SPUS with a portfolio of only around 200 stocks.

The performance gap comes down to sector concentration. With so many traditional industries screened out, SPUS ends up roughly 60% weighted toward technology stocks — comparable to a Nasdaq-100 fund like QQQ — versus about 37% for the standard S&P 500. Since tech has been the market's strongest-performing sector in recent years, that heavier tilt has worked in SPUS's favor. In fact, its top five holdings — Nvidia, Apple, Microsoft, Alphabet, and Broadcom — make up nearly 45% of the entire fund.

The broader takeaway: religious investment restrictions, often assumed to come at a cost, ended up functioning as a filter that happened to align with one of the market's biggest recent trends — a reminder that constraints don't always mean sacrificing returns, especially when they land in the right place at the right time.