In recent years, many financial companies in Canada started offering Sharia-compliant products and portfolio options. This is significant, as these Sharia-compliant products and accounts help the more than one million Muslims living and working in Canada.
What is halal investing?
Halal simply means “permissible,” so hllal investing means “permissible investing.” Some observant Muslims prefer to invest in a way that does not contradict their ethical or religious values, as laid out in Sharia Law.
Halal investing ethics include:
- 1.
Avoid earning interest: You can't receive interest from fixed-income investments or invest in businesses primarily profiting from interest, like banks.
- 2.
Avoid speculative stocks: This excludes highly leveraged stocks, day trading, short-selling, options, futures, and other risky techniques that resemble gambling.
- 3.
Avoid profiting from prohibited activities according to Sharia Law: This includes businesses involved in alcohol, tobacco, gambling, pork, pornography, and weapons.
- 4.
Participate in profit and loss: Instead of lending money (as with bonds), you must be a part-owner and share in the business's risks, as with stocks.
These principles are subject to nuanced interpretation.
Not all Islamic scholars agree on the specifics, making it difficult to construct a DIY halal portfolio. Instead, many Muslims rely on large, independent organizations advised by Islamic scholars who review companies and investments to ensure they are in line with Sharia.
What are halal investments?
| Halal | Not Halal |
|---|---|
| ✅ Amazon stock: Acceptable if revenue from non-Halal activities in minimal (needs screening) | ❌ Bank stocks: Banks profit primarily from interest, forbidden in Sharia law |
| ✅ Apple stock: Acceptable if revenue from non-Halal activities in minimal (needs screening) | ❌ S&P 500 stocks: Not Halal as it contains many non-compliant companies; requires individual stock screening. |
| ✅ Tesla stock: Acceptable if revenue from non-Halal activities in minimal (needs screening) | ❌ Bonds: Not Halal because it's based on lending money with interest, which is forbidden. |
| ✅ Gold: Permissible for investment if no speculation or excessive risk. | ❌ Index funds: Not Halal (mostly) because they often include non-compliant companies; requires specific Sharia-compliant funds.Options do exist though like the ✅ Dow Jones Islamic Market Titans 100 Index |
| ✅ Real estate: Acceptable if not associated with non-Halal activities, like gambling facilities. | ❌ Mutual funds: Not Halal (mostly) as many include interest or non-Halal companies; requires Sharia screening. 🟡 Options do exist like some CIBC mutual funds. |
| ✅ Crypto: Halal with conditions. Crypto can be Halal if it's used as a digital asset or currency like Bitcoin and Ethereum, which function as decentralized currencies or support blockchain infrastructure, are often considered permissible. | ❌ REITs: Not Halal as many invest in interest-based loans or non-Halal properties; screening required. |
The pros and cons of halal investing
Pros
-
Can tilt a portfolio in favour of growth, which is good for young, buy-and-hold investors
-
Naturally avoids high risk investments
-
Plenty of blue-chip companies to choose from
-
Socially responsible investing
Cons
-
Difficult to find good fixed-income investments
-
Hard to invest in real estate
-
Investors may simply avoid investing and keep their funds in cash
-
Some of the best blue-chip companies on the TSX are heavily interest-based so investors must depend more on American stock exchanges
-
Not environmentally conscious (halal permits investing in fossil fuel companies, for example)
How to start Halal investing in Canada
Check out these halal investing apps, open an account, fund it and start your Halal investment journey.
Best Halal stocks to invest in
Halal investors can open a brokerage account and pick stocks themselves.
The difficulty is they will have to screen stocks according to the following rules:
- No more than 5% of the company’s revenue can come from haram sources
- Must have less than 33% total debt compared to their market capitalization in the last year
- Must have more than 45% accounts receivable as compared to their total assets in the last year
- Nike (NYSE:NKE):Global leader in sportswear and footwear, generally considered Halal.
- Procter & Gamble (NYSE:PG):A diverse portfolio of consumer goods with Sharia-compliant revenue sources.
- Johnson & Johnson (NYSE:JNJ):Provides healthcare products and pharmaceuticals while adhering to ethical standards.
- AbbVie (NYSE:ABBV):Focused on pharmaceutical innovations, particularly in chronic disease treatments.
Canadian National Railway (TSX:CNR):Dominant in North America’s rail transportation sector, providing Halal-compliant services.
- NextEra Energy (NYSE:NEE):Specializes in clean energy and renewables, making it more aligned with Halal principles.
- Brookfield Renewable Partners (TSX:BEP.UN):A Canadian company investing in sustainable energy solutions.
Key tip
Always screen stocks for Sharia compliance using criteria like minimal debt, limited Haram income sources, and ethical practices. Tools like Zoya or Islamicly can help simplify the process.
Best halal index funds
Index funds are not typically Halal because they track all the stocks within a particular index. However, Dow Jones has put together a few indexes designed to measure the performance of the largest stocks traded globally that pass rules-based screens for adherence to Shariah investment guidelines.
- Dow Jones Islamic Market Titans 100 Index (TSX:DJI100X).
- Dow Jones Islamic Market Global Technology Titans 50 Index
- Dow Jones Islamic Market U.S. Titans 50 Index
- Dow Jones Islamic Market International Titans 100 Index
- Dow Jones Islamic Market Europe Titans 25 Index
- Dow Jones Islamic Market Asia/Pacific Titans 25 Index
The top ten constituents by index weight (or where the Titans 100 index invests most of its money) is with Apple, Nvidia, Microsoft, Amazon, Meta, Tesla, Alphabet A & C, Broadcom and Eli Lilly & Co.
Best Halal ETFs to invest in
| Wealthsimple Shariah World Equity Index ETF (WSHR.TO) | SP Funds S&P 500 Sharia Industry Exclusions ETF (SPUS) | SP Funds Dow Jones Global Sukuk ETF (SPSK) |
|---|---|---|
| Overview: A Canadian ETF focused on Sharia-compliant companies globally. | Overview: Tracks a Sharia-compliant version of the S&P 500. | Overview: Focuses on Sukuk (Islamic bonds) for fixed-income diversification. |
| Key features: Excludes Haram industries like alcohol, gambling, and financials; low-cost diversification. | Key features: Focuses on large-cap U.S. stocks while excluding interest-heavy sectors. | Key features: Offers stable returns without interest income. |
| Best for: Canadian investors seeking a simple, ethical investment option. | Best for: Investors wanting exposure to the U.S. market. | Best for: Conservative investors seeking income without compromising compliance. |
| Wahed FTSE USA Shariah ETF (HLAL) | iShares MSCI World Islamic UCITS ETF (ISDWL) |
|---|---|
| Overview: Tracks the FTSE USA Shariah Index. | Overview: Tracks global Sharia-compliant companies, available in Europe. |
| Key features: Excludes interest, gambling, alcohol, and non-compliant sectors; focused on U.S. growth. | Key features: Broad exposure across various industries and regions. |
| Best for: U.S. investors seeking Halal-compliant equities. | Best for: European investors looking for global Halal investments. |
Sukuk investments: Like bonds, but halal
For more conservative investors there is always the option to invest in a Sukuk – essentially an Islamic bond.
Similar to bonds, they reach maturity, are rated by major credit agencies, and payout regular income.
Unlike bonds, however, the investor is not lending money and receiving interest income. Instead, the investor is purchasing a part-ownership in a project and receiving a distribution from the profit.
They’re popular in Asia and the Middle East but are harder to find in Canada. You’d have to see a specialized financial planner at a bank or an investment firm to purchase Sukuk investments. Another option is buying a Sukuk exchange-traded fund (ETF) like the SPSK Dow Jones Global Sukuk ETF (NASDAQ:SPSK).
Since it isn't available through the Toronto Stock Exchange, you'll need to account for currency fluctuations, currency exchange costs and withholding tax, just like any other USD ETF.
Halal Gold and precious metals investing
Another lawful investment is gold or silver, whether it’s the precious metal itself, or an ETF that tracks the value (just make sure you’re not investing in gold or silver futures). To alleviate market risk, most investors keep this asset to no more than 5% of the value of your portfolio. Here are two of the most popular precious metal ETFs:
- iShares Gold Trust (NYSE:IAU): MER of 0.25%
- iShares Silver Trust (NYSE:SLV): MER of 0.5%
Best Halal investing app (robo advisor)
- Fully Sharia-compliant, focusing on equities that meet Islamic finance principles.
- No investments in Haram sectors like alcohol, gambling, or pork-related businesses.
- Globally diversified across Sharia-compliant companies.
- Best for: Investors seeking a simple, automated, and ethical solution.
For an automated, hands-off Halal investment option in Canada, Wealthsimple's Halal Portfolio is your best bet. In fact, Wealthsimple is currently the only major Canadian robo-advisor offering a Halal portfolio.
It cuts down barriers, enabling anyone to purchase a diversified portfolio of stocks without having to transfer money into USD and without having to do any research themselves. You can even hold the investment inside a TFSA or a registered retirement savings plan (RRSP).
Unlike other Wealthsimple automated portfolios, there are no ETFs – just 50 global stocks. All companies are screened by a third-party committee of Sharia scholars to ensure they are compliant.
Wealthsimple charges a fee of 0.5% for the first $100,00 invested and 0.4% for over $100,000.
Unfortunately, Justwealth and Questwealth (2 of our best robo advisors) don't have tailored portfolios that cater to Halal-specific needs.
Wahed Invest is a Sharia-compliant robo-advisor available globally, though not yet in Canada. They exclusively offer Halal investment portfolios included Sukuk (Islamic bonds) and Sharia-compliant stocks.
Why halal investing is hard in Canada
The difficulty is that these restrictions eliminate so many common Canadian investments. The following would be considered haram, or “forbidden” to those who seek to be Sharia-compliant:
- GICs
- Bonds
- Options and futures
- Preferred shares
- Big Five bank stocks
- Mortgage funds
- Cannabis stocks
- Stocks on the TSX VentureExchange
As you can see, both the very low-risk investments and the highest-risk investments are not eligible for consideration.
Due to Sharia-compliance, most halal investors are over-dependent on equities; however, the equities that meet halal requirements are, quite often with companies with relatively low levels of low dependence on debt and debt instruments. As a result, many mainstream, publicly-traded companies are halal compliant. (Even if non-Sharia compliant investors were to use more advanced investing strategies, such as option-trading, this wouldn't omit the firm from passing Sharia-compliant standards.)
As it turns out, halal investing's over-dependence on equities does not translate into more risk. In fact, recent studies show that ultra-conservative investors who avoid investing in equities have significantly more risk, when it comes to investing returns and diversification. That's because equities are an exceptional hedge against inflation — the primary reason for a reduction in purchasing power (how a dollar buys you less, over time).
The standard advice to diversify your investment portfolio also applies to Sharia-compliant investors. Given the reliance on stocks, halal investors should pay attention to diversification within asset classes as well as across sectors. In plain speak that means holding stocks for different companies within various industries and to pay attention to your portfolio's geographical split.
It also means that halal investing suits both new investors and seasoned traders, as well as aggressive or conservative investors.
What happens when a halal investor approaches retirement?
In general, an investor will start to rebalance their investment portfolio as they near retirement — going heavier on fixed-income products, such bonds and guaranteed investment certificates (GICs). Halal investors cannot use these products; however, they can use allowable fixed income products, like Sukuk bonds or real estate partnerships. Alternatively, the investor may choose to focus on dividend paying stocks.
Sukuk bonds provide stable, predictable income in a Sharia-compliant manner.
Real estate offers steady income through rental profits, not interest.
Dividend-paying stocks provide regular income while maintaining ownership in Halal-compliant companies.
Is halal investing just for Muslims?
While halal investing is based on specific religious principles, this investment strategy is definitely not just for Muslims. Investors who want to avoid supporting companies that contradict their values, such as companies involved in pornography or alcohol, will also appreciate the approach of halal investing products and strategies. To be Sharia-compliant takes a lot of time, energy and knowledge but to observant Muslims — and those committed to investing based on their values — it’s worth it.
— with files from Romana King
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Danielle Kubes is a Millennial personal finance expert and freelance finance writer from Toronto, Canada. Her reporting has been published in The Globe and Mail, Financial Post, MoneySense, Vice and many more. Danielle consults and writes for Money.ca on topics including investing and freelancing.
Tyler Wade has worked in personal finance for over 5 years writing for brands like Ratehub, Forbes, KOHO, and now Money.ca.
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