Building a Sharia-compliant portfolio: ETFs, Sukuk, and the math

A Sharia-compliant portfolio rules out: interest-bearing instruments (bonds), companies with high debt-to-equity, and sectors like alcohol, conventional finance, gambling, and adult entertainment. The remaining universe is smaller — but not by as much as you'd think.

The three building blocks

• Sharia-compliant equity ETFs. ISDW (iShares MSCI World Islamic UCITS) and HLAL (Wahed FTSE USA Shariah) are the cleanest large-cap exposure. Both have moderate TER (~0.30-0.45%).
• Sukuk (Islamic bond equivalents). SKIC (Franklin Global Sukuk) and SPSK (SP Funds Dow Jones Global Sukuk) provide income without interest — they're asset-backed.
• Cash + commodities. Gold and physical commodities are typically permissible.

Allocation framework

The same age-based stock/bond rule applies, just substituting Sukuk for bonds:

Stocks % = clamp((110 - age) + risk_adjustment, 20, 95)

For a 35-year-old with average risk tolerance: 75% stocks (ISDW or HLAL) / 25% Sukuk (SKIC or SPSK).

Purification

Even in screened ETFs, ~5% of dividend income may come from impermissible sources (e.g. interest on cash held by portfolio companies). Purification means donating that portion to charity. Most fund managers publish a quarterly purification ratio. Track it; don't skip it.

What about gold?

Physical gold is permissible. Gold ETFs that hold physical bullion (e.g. SGOL) work. Gold mining ETFs are murkier — you're invested in operating companies, which need separate Sharia screening.

k25x's AI advisor builds Sharia-compliant allocations natively. Set investmentPreference: islamic in Settings.