Do Halal ETFs Invest in Weapons Companies? What a Shariah Screen Checks

Key takeaways

• It depends on the index, not on the word halal. S&P says its Dow Jones Islamic Market indices exclude defense companies and its S&P Shariah indices allow them.
• A Shariah screen asks what a company sells and how much debt it carries. It does not ask who the company supplies.
• Middle East Eye reported in October 2026 that HSBC's Islamic Global Equity Index Fund bought more than $100 million of shares in companies it links to the Israeli military in the first half of 2026. HSBC changed the fund's index on 23 March 2026. I can't tell you whether that is why, and HSBC hasn't said.
• You don't own shares in the companies inside your ETF: the fund does, and you have no say in what they do. You still make money when their stock rises or they pay dividends. Halal funds tolerate a small share of income that isn't halal, which is why investors are asked to purify. SPUS's provider published 1.81% for the first quarter of 2026.
• You can check any fund in minutes: the index name, the holdings, the screen and the purification figure. Then accept it knowingly, or divest and hold something you control. Whether a fund is halal is a question for scholars.

Some do, and some don't. It depends on which index the fund tracks. S&P says its Dow Jones Islamic Market indices exclude defense companies and its S&P Shariah indices allow them, so two funds that are both called Shariah-compliant can hold very different things. In October 2026, Middle East Eye (MEE) reported that the UK's largest halal fund bought shares in companies it links to the Israeli military. The HSBC "scandal" made the rounds, and I wasn't surprised: when you hand your money to an ETF or index fund, you don't pick what's inside. I sold my own halal ETF earlier this year for two reasons that the story illustrates.

Do halal ETFs invest in weapons companies?

Short answer: It depends on the index. S&P wrote in May 2023 that Dow Jones Islamic Market indices exclude defense companies while S&P Shariah indices allow them. SPUS's index removes the aerospace and defense sub-industry. HSBC's fund switched to an S&P index on 23 March 2026. The rule for that specific index is not confirmed here.

The word halal on a fund describes a screen, and screens differ because, in S&P's words, scholars have not reached a complete consensus on every aspect of Islamic finance. SPUS, the ETF I held, tracks an index that starts from the S&P 500 Shariah Index and removes three sub-industries: aerospace and defense, financial exchanges and data, and data processing and outsourced services, according to its March 2023 summary prospectus. Check the current prospectus, because indexes change.

I could not open the methodology for the S&P Global 1200 Shariah Select Index, which is the index HSBC's fund now tracks, so I can't tell you what it does with defense companies. That is the first thing to check if you hold the fund.

What does a Shariah screen actually check?

Short answer: Two things, in order: the company's business activities, then its financial ratios. A scholars' board sets the rules and the index maker applies them. It does not check who a company supplies, so a company can pass without anyone asking where its products go.

According to S&P Dow Jones Indices, screening works at two levels. First, businesses with significant involvement in activities treated as noncompliant are removed. S&P lists conventional financial services, alcohol, tobacco, gaming, pork, pornography and most conventional media. Then the remaining companies are tested on financial ratios, such as how much debt they carry and how much cash, receivables and interest-earning securities they hold. A supervisory board of Islamic scholars defines the rules. S&P keeps responsibility for everything else, including which companies are in the index and how they are weighted.

What did Middle East Eye report about HSBC's halal fund?

Short answer: MEE reported that HSBC's Islamic Global Equity Index Fund bought more than $100 million of shares in companies it links to the Israeli military in the first half of 2026. HSBC did not respond. The links between the companies and the Israeli military are MEE's characterization, not HSBC's.

MEE's analysis of the fund's semi-annual report found purchases of $35.7 million in RTX, $20.3 million in Analog Devices, $18.9 million in Honeywell and $17.6 million in Rolls-Royce, a total of $92.5 million. Hyphen reported a further $38.3 million in Palantir. MEE also said the fund holds about $9.4 million in BAE Systems and shares in Booking.com and Expedia, and that most halal pension schemes in Britain are invested in it. RTX and Honeywell did not respond to MEE. Analog Devices said its shares trade on the open market and it does not direct or control any fund's investment decisions. Rolls-Royce said it would not comment on investors.

Here is the part that I think matters most. HSBC told unitholders in a notice dated 29 January 2026 that the fund would change the index it tracks, from the Dow Jones Islamic Market Titans 100 Index to the S&P Global 1200 Shariah Select Index, on 23 March 2026, based on client feedback. A letter from Legal & General to members of a pension scheme that holds the fund says the aim is to improve diversification: about 500 companies instead of about 100. Neither HSBC nor MEE says that the index change is why these shares are in the fund. I can't tell you whether it is.

One caution: HSBC has two funds with a similar name. The Luxembourg fund with that name still tracked the Dow Jones Islamic Market Titans 100 Index in its 30 September 2026 report, and its top ten holdings were Apple, Microsoft, Alphabet, NVIDIA, Amazon, Broadcom, Meta, Micron, Tesla and AMD. The index change above is for the Irish common contractual fund that UK pension providers use, and I have not confirmed that it is the fund MEE analyzed.

Why does a halal ETF need purification?

Short answer: Because a halal screen allows a company to earn a small share of its income from things that aren't halal. The fund passes the company's dividends on to its investors, so part of what you receive comes from that income, and you are asked to give that part away. This is called purification.

I held SPUS from late last year until earlier this year. I only learned about purification after I'd invested, and I thought: if something is already halal, why does it need purifying? The platform I used just said "Shariah-compliant." The provider, SP Funds, publishes a purification factor each quarter: 2.04% of dividends for the third quarter of 2025, 1.97% for the fourth, 1.81% for the first quarter of 2026 and 1.66% for the second. It says the factors come out about two and a half months after each quarter ends, and that it does not deduct the amount from your account. You work it out and donate it yourself.

I looked at the public SPUS pages on eToro and Robinhood while writing this, logged out, and found no mention of purification in the text I could read. I can't see the screens you see once you are logged in, and the fund's 2023 summary prospectus does not mention purification either. The provider's own website does. If your platform tells you before you buy, I'd like to know.

The tolerance itself is usually put at around 5% of income, according to Islamic finance explainers that cite the AAOIFI standard. I could not open the standard itself, so treat the number as an approximate guide and check it against your fund's own documents.

Does buying a halal ETF fund a war?

Short answer: Not directly, and you don't even own the shares. The fund buys them from other investors, and you own units of the fund. You have no say in what the companies do, but you make money when their stock rises or they pay dividends. Whether you are comfortable with that is for you to decide.

A university finance course puts it this way: in a secondary market trade, the company itself doesn't receive any money. The fund pays the investor who sold the shares. Think of an index as a shopping list somebody else wrote. The fund goes shopping with your money, buys what the list says, and you share in what comes back. You never see the kitchen, and you can't vote on the menu. If one of the companies also runs a side business you wouldn't have picked, you still collect your share of what it earns, and that is the situation purification exists for. Whether owning a slice of a particular fund matches your values is for you to decide, and whether a fund is halal is a question for qualified scholars.

How can you see what your halal fund holds?

Short answer: Find the index name on the factsheet, open the full holdings list, read the index methodology for defense and weapons, find the provider's purification figure, and ask the provider in writing what the screen covers. All of it is public or available on request.

1. The index. The factsheet names it. HSBC's Luxembourg fund names the Dow Jones Islamic Market Titans 100 Index; SPUS names the S&P 500 Sharia Industry Exclusions Index.
2. The holdings. Factsheets usually show only the top ten. The full list is on the provider's website or in the semi-annual report, which is how MEE found its numbers.
3. The methodology. Look up the index provider's document and search it for defense, weapons and aerospace.
4. The purification figure. Providers such as SP Funds publish it quarterly. If yours doesn't, ask.
5. A written question. Ask your platform or provider which screen the fund applies, and whether it covers who the companies supply.

What can you do if the fund doesn't match your values?

Short answer: You have two options. Suck it up: take the returns and let go of the idea of boycotting anyone. Or divest and put your money in something you control. The catch is that everything then falls on you.

That is my position, and I took the second option. You don't have control inside an index fund: the index picks the companies, and you own units of the fund, not shares in them. Muslims make all kinds of compromises when investing in the stock market, and purification is the proof: why else would you need to purify your returns? So suck it up and take the returns, or divest and put your money somewhere you control (ahem: crypto). The catch is real. There is no manager, no screen and no one to blame. Nobody should promise you unrestricted access to anything, and holding something yourself means the risk is yours. Lesson 1.3 of the Future of Finance course gives a framework for researching compliance, and Lesson 4.1 covers what holding your own keys means, at academy.thelifedao.io. We built The Lifedao as a non-custodial Nobank for the same reason: nobody sits in the middle of your money.

FAQ

Do halal ETFs invest in weapons companies? It depends on the index. S&P says its Dow Jones Islamic Market indices exclude defense companies and its S&P Shariah indices allow them. SPUS's index removes the aerospace and defense sub-industry, according to its 2023 summary prospectus. Check the index methodology and the current holdings of any fund you own.

What is purification in halal investing? Purification means giving away the share of your dividends that comes from income that isn't halal. A halal screen tolerates a small share of such income, so the fund's provider publishes a figure for it. For SPUS the provider's figure for the first quarter of 2026 was 1.81% of dividends, and the provider does not deduct it for you.

Is a Shariah-compliant ETF the same as one that matches your values? No. A Shariah screen applies rules approved by scholars about what a company sells and how much debt it carries. It does not ask who the company supplies. Whether a fund matches your values is a separate question that you answer yourself.

How do I find out what my halal fund holds? Find the index name on the factsheet, then open the provider's full holdings list or the semi-annual report. Read the index provider's methodology for defense and weapons, find the provider's purification figure, and ask the provider in writing what the screen covers.