XEQT vs Halal ETFs: Shariah-Compliant Investing for Canadian Muslims

A few years ago, my coworker Amir pulled me aside after a team lunch. We had been talking about investing – the usual XEQT evangelism I tend to do – and he looked genuinely torn. “I want to invest like you do,” he said. “Simple, low-cost, set-it-and-forget-it. But I need to make sure it’s halal. And honestly, I have no idea where to start.”

That question sent me down a rabbit hole I was not expecting. I had always assumed that XEQT was the answer for basically every Canadian investor. One fund, global diversification, ultra-low fees, done. But for the roughly 1.8 million Muslims living in Canada – many of them young professionals earning good salaries and eager to build wealth – the picture is more complicated. Faith-based investing is not just a preference; it is a deeply held obligation. And XEQT, as wonderful as it is for most investors, creates some real conflicts with Islamic finance principles.

Amir and I spent a few evenings going through the options together. We looked at Shariah screening methodologies, compared halal ETFs, ran the numbers on fees and returns, and talked to an imam who specializes in Islamic finance. What I learned changed how I think about values-based investing entirely.

This post is everything we figured out. Whether you are a Muslim investor trying to align your portfolio with your faith, or simply someone curious about how halal investing works in Canada, this is the most comprehensive comparison I can put together.

1. What Makes an Investment Halal vs Haram?

Before we compare any ETFs, it is important to understand the framework. Islamic finance is governed by Shariah law, which establishes clear principles about what kinds of economic activity are permissible (halal) and what kinds are forbidden (haram). These are not arbitrary rules – they are rooted in the Quran and Hadith and reflect a broader ethical framework about how money should be used in society.

Here are the core principles that affect investing:

Riba (Interest)

This is the big one. Riba, or interest/usury, is strictly prohibited in Islamic finance. This means:

• Companies that earn significant revenue from charging interest (banks, insurance companies, credit card issuers) are generally excluded
• Companies that carry excessive interest-bearing debt are screened out
• Bonds and GICs, which are fundamentally interest-based instruments, are not halal
• Even conventional savings accounts that pay interest raise concerns

This single principle eliminates a huge swath of the financial sector from a Muslim investor’s universe.

Haram Industries

Certain business activities are inherently forbidden, and companies that derive revenue from these activities are excluded:

• Alcohol – production, distribution, and sale
• Gambling – casinos, lotteries, sports betting
• Pork – production and processing
• Tobacco – some scholars include this, others debate it
• Weapons and defense – particularly weapons of mass destruction
• Adult entertainment – pornography and related businesses
• Conventional financial services – interest-based banking and insurance

Financial Screening Ratios

Even if a company operates in a permissible industry, it must pass financial screens. Different Shariah boards use slightly different thresholds, but common screens include:

• Debt-to-market-cap ratio must be below 33%
• Interest-bearing securities and cash must be below 33% of total assets
• Revenue from non-permissible activities must be below 5% of total revenue
• Accounts receivable should not exceed 49% of total assets

These screens are designed to ensure that even “clean” companies are not overly reliant on debt or interest-based income.

Purification

Here is something many non-Muslim investors do not know: even halal investments may generate small amounts of impermissible income (for example, a halal company earning a tiny bit of interest on its cash reserves). Shariah-compliant investing requires purification – donating a calculated percentage of your investment returns to charity to “cleanse” the impermissible portion. Most halal ETFs and platforms calculate this purification amount for you.

2. Is XEQT Halal?

Let me be straightforward: no, XEQT is not considered halal by mainstream Islamic scholars and Shariah advisory boards.

Here is why. XEQT holds over 9,000 stocks across 49 countries. That massive diversification – its greatest strength for conventional investors – is precisely the problem for Shariah compliance. When you own the entire global stock market, you inevitably own:

• Major banks and financial institutions – JPMorgan, RBC, TD, and dozens of interest-based lenders
• Alcohol producers – Diageo, Anheuser-Busch InBev, Constellation Brands
• Gambling companies – Flutter Entertainment, MGM Resorts, Caesars
• Pork producers – Tyson Foods, Hormel, and others
• Weapons manufacturers – Lockheed Martin, Raytheon, BAE Systems
• Tobacco companies – Philip Morris, British American Tobacco
• Conventional insurers – Manulife, Sun Life, and dozens more

The financial sector alone represents 15-20% of XEQT’s holdings. That single exposure makes XEQT incompatible with Shariah principles.

Some investors have asked me: “Can I just buy XEQT and donate the haram portion to charity?” Most scholars I have spoken with say no – the prohibition is on owning the investment itself, not just on the income it generates. Purification applies to incidental, unavoidable impermissible income within an otherwise halal investment, not to a fund that is fundamentally invested in prohibited industries.

Bottom line: If strict Shariah compliance is important to you, XEQT is not the right choice. But the good news is that there are alternatives – and they are better than you might expect.

3. Halal ETF Options Available to Canadian Investors

The halal investing landscape has improved dramatically in the past few years. Here are the main options available to Canadian Muslims:

HLAL – Wahed FTSE USA Shariah ETF

HLAL is probably the most accessible halal ETF for Canadian investors. It is listed on the NYSE, which means you can buy it through any Canadian brokerage that offers US-listed securities (including Wealthsimple, Questrade, and the big bank brokerages).

• Provider: Wahed Invest
• Index: FTSE USA Shariah Index
• Holdings: ~230 US large-cap stocks
• MER: 0.50%
• Shariah Board: Reviewed by an independent Shariah advisory board
• Screening: FTSE’s established Shariah screening methodology, widely accepted by scholars
• Geographic Focus: US only

HLAL gives you exposure to US large-cap companies that pass both industry and financial Shariah screens. You will find names like Apple, Microsoft, Johnson & Johnson, Visa, and UnitedHealth Group – major, high-quality companies that happen to operate in permissible industries and maintain acceptable debt ratios.

What you will not find: banks, alcohol companies, gambling operators, or weapons manufacturers. The screening is thorough.

ISUS / ISWD / ISDE – iShares MSCI Shariah ETFs

iShares (the same company behind XEQT) offers a suite of Shariah-compliant ETFs:

• ISUS – iShares MSCI USA Islamic ETF (US-focused)
• ISWD – iShares MSCI World Islamic ETF (developed markets)
• ISDE – iShares MSCI Emerging Markets Islamic ETF (emerging markets)

These are listed on the London Stock Exchange and may not be available through all Canadian brokerages. However, platforms like Interactive Brokers and some of the more full-featured brokerages do provide access. The MERs range from 0.30% to 0.85%, and they use MSCI’s well-established Islamic Index methodology for screening.

The advantage of the iShares suite is that you can combine ISWD and ISDE to build a globally diversified Shariah-compliant portfolio – something that is harder to achieve with HLAL alone.

Wealthsimple Shariah Portfolio

This is the option that excites me the most for Canadian investors who want simplicity. Wealthsimple offers a managed Shariah-compliant portfolio through their robo-advisor service.

• Type: Managed portfolio (not a single ETF)
• Underlying ETFs: A mix of Shariah-compliant equity and sukuk (Islamic bond equivalent) funds
• MER: Underlying fund MERs of ~0.40-0.55% plus Wealthsimple’s 0.50% management fee
• All-in cost: Approximately 0.90-1.05% annually
• Shariah Board: Certified Shariah-compliant by an independent advisory committee
• Geographic Focus: Global
• Account Types: TFSA, RRSP, personal (non-registered)

The appeal here is that Wealthsimple handles everything – diversification, rebalancing, Shariah screening, and even purification calculations. You deposit money and they invest it in a globally diversified, Shariah-compliant portfolio. No stock picking, no worrying about whether individual companies still pass screening criteria, no manual rebalancing.

The trade-off is cost. At roughly 1% all-in, you are paying significantly more than XEQT’s 0.20% or even HLAL’s 0.50%. But for many investors, the convenience and peace of mind are worth it.

Other Options

• Individual halal stock picking – Some investors screen individual stocks themselves using apps like Zoya or Musaffa. More work, but full control.
• Sukuk ETFs – For fixed-income allocation, sukuk (Islamic bonds) offer a Shariah-compliant alternative to conventional bonds.

4. The Head-to-Head Comparison: XEQT vs HLAL vs Wealthsimple Shariah

Let’s put the numbers side by side. This is what Amir and I spent the most time on, because at the end of the day, the details matter.

Performance Comparison

Comparing returns between XEQT and halal alternatives requires some nuance. Shariah-compliant indexes tend to underweight or exclude the financial sector entirely, which can be either a benefit or a drag depending on the market environment.

Here is the interesting thing: Shariah-compliant US equity indexes have actually performed quite competitively with broad market indexes over the past decade. The FTSE USA Shariah Index (which HLAL tracks) has roughly tracked the S&P 500 in terms of total return, sometimes slightly lagging, sometimes slightly outperforming. Why? Because excluding banks (which have been mediocre performers) and overweighting technology (which has been the dominant sector) has largely offset the reduced diversification.

Some approximate figures for context:

A few caveats: HLAL is US-only, so comparing it to global XEQT is not perfectly apples-to-apples – the US market has outperformed internationally for much of the past decade, which flatters HLAL’s numbers. Past performance during US tech dominance is not predictive. And Wealthsimple Shariah’s returns will be lower than HLAL due to higher fees and sukuk/fixed-income allocations.

5. The Trade-Offs of Halal Investing

I want to be completely honest about this, because I think Muslim investors deserve transparency rather than sugar-coating. Halal investing has real trade-offs compared to a broad-market approach like XEQT. Understanding them helps you make an informed decision.

Smaller Investment Universe

XEQT gives you exposure to roughly 9,000 stocks. HLAL gives you around 230. When you eliminate entire sectors (financials, alcohol, gambling, weapons, tobacco) and apply financial screens (debt ratios, interest income), you are working with a much smaller pool of companies. This is not inherently bad, but it does mean less diversification.

Higher Fees

Every halal product on the market charges more than XEQT’s 0.20% MER:

• HLAL charges 0.50% – 2.5 times more than XEQT
• Wealthsimple Shariah charges roughly 0.90-1.05% – about 5 times more
• iShares Shariah ETFs range from 0.30% to 0.85%

Over a 30-year investing career, this fee difference compounds significantly. On a $500,000 portfolio, the difference between 0.20% and 0.50% fees amounts to roughly $45,000 in lost returns over 30 years. The difference between 0.20% and 1.00% could exceed $150,000.

That said, fees have been trending down across the industry, and I expect halal products to become more competitive as demand grows.

US Concentration

HLAL, the most popular halal ETF accessible to Canadians, is 100% US-focused. If you want global diversification, you need to either:

• Combine HLAL with other Shariah-compliant international funds (which may be harder to access)
• Use the Wealthsimple Shariah managed portfolio
• Build a custom portfolio of individually screened international stocks

XEQT, by contrast, gives you automatic global diversification across 49 countries with a single purchase. That simplicity is hard to replicate in the halal space.

Sector Concentration

Excluding the financial sector entirely means halal portfolios are inherently overweight in other sectors – particularly technology, healthcare, and consumer goods. When tech is booming (as it has been for much of the past decade), this overweight actually helps performance. But it cuts both ways. In a tech downturn, halal portfolios may decline more than broad-market funds.

Potentially Different Returns

Over some periods, halal portfolios will outperform the broad market. Over other periods, they will underperform. The key variables are:

• Financial sector performance – When banks do well, halal portfolios miss out
• Tech sector performance – When tech does well, halal portfolios benefit from overweighting
• Interest rate environment – Rising rates tend to benefit banks (which halal portfolios exclude) but hurt growth stocks (which halal portfolios overweight)

The honest answer is that no one can predict with certainty whether halal investing will outperform or underperform over your specific investment horizon. But the historical data suggests the long-term difference is likely smaller than most people assume.

6. Strategies for Muslim Canadian Investors

If you have decided that Shariah compliance is non-negotiable (as it should be, if it is part of your faith), here are some practical strategies to build a strong halal portfolio in Canada.

Choose the Right Account Type

The good news is that all major Canadian registered accounts are compatible with halal investing:

• TFSA – All gains grow completely tax-free. Ideal for your primary halal equity investments. Max this out first if you are a young investor.
• RRSP – Tax-deferred growth, great if you are in a high bracket now. The majority scholarly opinion is that RRSPs are permissible since no riba is being charged or earned.
• FHSA – Combines TFSA and RRSP benefits for first-time home buyers. Excellent for young Muslim Canadians saving for a home while investing in halal products.
• Non-Registered – No tax advantages, but no restrictions either. Use once your registered accounts are maxed out.

Platform Choices

• Wealthsimple – Best overall. Commission-free trading on Canadian and US-listed ETFs, plus a dedicated Shariah managed portfolio. Self-direct with HLAL or go hands-off with their managed option.
• Questrade – Good for self-directed investors. Free ETF purchases, access to US-listed securities. No managed halal portfolio.
• Interactive Brokers – Best for advanced investors who want London-listed iShares Shariah ETFs (ISWD, ISDE) for global diversification.

Building a Diversified Halal Portfolio

Here is a sample portfolio structure I helped Amir put together:

Simple Approach (one fund):

• 100% HLAL in a TFSA – Easy, low-maintenance, US Shariah-compliant equity exposure. Understand that you are US-concentrated.

Moderate Approach (two to three funds):

• 70% HLAL (US Shariah equity)
• 20% individual halal international stocks or iShares ISWD (developed markets Shariah)
• 10% cash or sukuk ETF (liquidity and stability)

Comprehensive Approach (Wealthsimple Managed):

• Use Wealthsimple’s Shariah portfolio for automatic global diversification, rebalancing, and purification guidance. Accept the higher fee in exchange for simplicity and compliance confidence.

Dollar-Cost Averaging Still Works

Whatever halal investment you choose, the core strategy remains the same: invest a fixed amount regularly, regardless of what the market is doing. Set up automatic deposits into your Wealthsimple account and let time and compounding do the heavy lifting.

7. When XEQT Might Still Be Considered

I want to address this carefully, because it is a nuanced topic within the Muslim community.

Islamic finance is not a monolith. There is genuine scholarly debate about where the lines are drawn, and different Muslims make different decisions based on their own understanding, their own scholars, and their own relationship with their faith.

Some points worth considering:

• Scholarly opinions vary. Some scholars take a stricter view that any broad-market fund containing haram companies is impermissible. Others adopt a more lenient position, suggesting that if the haram component is a small minority and the investor purifies their returns, it may be acceptable.
• The “necessity” argument. Some scholars invoke the principle of necessity (darurah) – when halal alternatives are unavailable or impractical, some flexibility may be permitted. This argument was stronger a decade ago when halal ETFs barely existed, but some investors with limited brokerage access may still find it relevant.
• Individual research matters. If you are uncertain, consult with a knowledgeable scholar or imam who understands both Islamic jurisprudence and modern financial instruments. This is a personal decision that should not be made based solely on a blog post (including this one).

I want to be clear about my own position: I am not a scholar of Islamic finance. I am a Canadian investor who writes about XEQT. What I can tell you is that for investors who want strict Shariah compliance, the alternatives exist and they are viable. They are not perfect, but they are real, accessible, and improving every year.

8. Final Verdict and Recommendations

Let me wrap this up with clear, actionable advice for different types of investors.

If You Are a Muslim Investor Who Prioritizes Shariah Compliance

Skip XEQT. It is a fantastic fund for conventional investors, but it is not designed to meet Shariah requirements and it holds significant positions in industries and companies that are clearly haram by mainstream scholarly consensus.

Instead, consider:

1. Wealthsimple Shariah Portfolio if you want a hands-off, globally diversified, Shariah-certified solution and are willing to pay the higher fee for convenience and peace of mind
2. HLAL in a self-directed Wealthsimple account if you want lower fees and are comfortable with US-only equity exposure
3. A combination of Shariah-compliant ETFs (HLAL + iShares Shariah international funds) if you want global diversification and are willing to do more work

If You Are a Muslim Investor Still Researching

Take your time. Speak with a knowledgeable imam or Islamic finance scholar. The important thing is that you start investing – the cost of staying in cash and losing purchasing power to inflation is real and significant, regardless of your faith.

The Honest Bottom Line

My friend Amir ended up going with a combination: he put the bulk of his TFSA into HLAL through a self-directed Wealthsimple account, and he opened a managed Shariah portfolio for his RRSP where he wanted less hands-on involvement. His all-in cost is higher than my XEQT-only portfolio, and his diversification is narrower. He knows this. He accepts this.

But here is what he told me over coffee a few months ago, and it stuck with me: “I used to feel guilty every time I looked at my old portfolio. I knew I was invested in companies that went against everything I believed in. Now I actually feel good about my investments. I check my portfolio and I feel proud, not conflicted. That peace of mind is worth more than a few basis points.”

I cannot argue with that. Investing is not just about optimizing returns down to the last decimal point. It is about building wealth in a way that lets you sleep at night. For Amir – and for millions of Muslim Canadians like him – halal investing makes that possible.

And for those ready to get started, the tools have never been better.

Disclaimer: This post is for informational purposes only and does not constitute financial advice or religious guidance. The author is not a scholar of Islamic finance. Shariah compliance is a personal matter – consult with a qualified Islamic finance scholar for guidance specific to your situation. Past performance does not guarantee future results. Always do your own research and consider consulting a qualified financial advisor before making investment decisions. I am not a financial advisor. The referral link above supports this blog at no cost to you.