SPUS - SPUS: Shariah Exclusions ETF With Nearly 50% Allocated To The Magnificent 7

2024-05-17 12:36:30 ET

Summary

• SPUS tracks the S&P 500 Shariah Industry Exclusions Index, selecting large-cap companies meeting specific screens related to how they derive net income. Fees are 0.45% and AUM is $575 million.
• SPUS also screens constituents for debt, and the fund ranks an impressive #18/57 on profitability among the large-cap growth ETFs I track. High quality is SPUS' best fundamental feature.
• The downside is SPUS is highly concentrated, with 47% allocated to Magnificent Seven stocks and two-thirds of assets in only 25 companies.
• The ETF's growth and valuation combination is also not ideal compared to its large-cap growth peers. I've identified at least four others with lower fees, better profit scores, and better PEG ratios that non-religious investors should consider first.
• Still, there are few Shariah-law-compliant alternatives. After evaluating HLAL's fundamentals, I believe SPUS is the better choice, and I have maintained my "hold" rating assigned earlier this year.

Investment Thesis

This article continues my coverage of the SP Funds S&P 500 Sharia Industry Exclusions ETF (SPUS), a top-performing ESG fund that satisfies Islamic religious law investing requirements. In January, I rated SPUS a solid "hold" as I expressed my concerns about managers' unique debt screening process but was reassured by the overall portfolio's high quality. Nevertheless, SPUS has continued to perform well, delivering a 9.85% total return since my review and outperforming the tech-heavy Invesco QQQ ETF ( QQQ ) and its main competitor, the Wahed FTSE USA Shariah ETF (HLAL). As shown below, it's also kept pace with the SPDR S&P 500 ETF ( SPY ), the benchmark representing its selection universe....

For further details see: