Best Halal Stocks To Invest In UK & US (Top 20 List)
In this post, I will discuss the best halal stocks to invest in and also how to find them. You can choose to either simply automate the whole thing and trust a halal broker to it for you (pick the stocks for you), or, you can do it yourself and analyse each one to decide whether it is halal or haram. I will teach you how to easily find the halal stocks without having to look at its financials and balance sheets yourself (you probably wouldn't be reading this if you already know this!). I will show exactly how to do this and will also give you a list of the top 20 halal stocks in my opinion. I live in the UK so I will be talking from my perspective but this applies to US residents and other countries.
Halal Investing For Beginners: Automation
The easiest way to start investing for Muslims is to find a company/broker (called a Roboadvisor) who will manage your investing portfolio based on your appetite for risk. These companies follow certain rules decided by a board of scholars to decide the "halalness" of stocks.
In the UK and US, one of these companies is Wahed Invest. They are a trusted popular choice and are a member of the FSCS so your money is protected (up to £85,000, in case Wahed goes bankrupt) but obviously capital is at risk when you invest anywhere.
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| Different portfolio types and expected returns based on risk |
Wahed allows you to invest as little as £100 and to choose where your money is invested. You can choose the percentage of money going into:
- International stocks.
- Emerging market stocks.
- Sukuk
- Gold
Wahed is a good choice for long term investment and they are certified by the "Shariah Review Beareu" based on criteria from a large Islamic organisation: the AAOIFI, plus they also ensure purification of the money. The general standards they follow are summarised below, for more details, check their website on their criteria.
"In brief, any portfolio cannot hold shares of a company that:
- Provides non-Islamic financial services and any other related interest services.
- Manufactures/sells products or services not approved by the Ethical Board (i.e. liquor, tobacco, gambling, pornography, weaponry etc).
- Has interest revenue exceeding a certain percentage of total revenue (usually 5%) - unless it is given to charity.
- Does not have a certain percentage of non-liquid assets
- Does not comply with certain debt ratios"
But here is the catch: as with other portfolio managers, Wahed charge a fee which is not small compared to other "non halal" companies. Their fees are 0.99% plus other market fees like exchange fees, etc so the total is 1.8%.
Other roboadvisors include ShariaPortfolio (USA) and WealthSimple (Canadian platform).
Doing It Yourself - Choosing Halal Stocks and ETFs [Free]
There are different reasons why you would do this: a) you don't want to pay the fees to a roboadvisor and b) maybe you are not entirely happy with some of the stocks that they rated as "halal" or even their criteria (you think they are too lenient or too strict). For example, Wahed uses debt as one of their criteria to judge stocks but you might say it is interest that is haram, not debt per se. Or, they might allow shares in companies where interest constitutes a small amount (5% max) of the company's income which you might not be comfortable with. So to do this on your own you need 2 things: a) know which stocks are halal AND are a good buy and b) once
you are happy with a stock, you can go ahead and start investing using
online brokers like AJ Bell, Trading 212 or WeBull, etc. More on those
programs at the end of this page.
By the way here is what ETFs mean:
ETFs or Exchange Traded Funds offer you to invest in many shares at once and they usually follow a specific market. For exampe, thet might follow the S&P500 (the top 500 performing companies in stock exchanges in the US. An ETF is traded on the market as a single stock but when you invest in it, you are putting your money in all the companies included (the money is divided between them).
Zoya:
Probably the most commonly used app. You can search Zoya to get a rating whether a stock is Sharia compliant or not and it contains thousands of stocks. There is also a detailed report that you can get if you subscribe to become a member for a fee. Zoya also bases their analysis on the AAOIFI criteria.
Example of detailed report - Islamicly:
Similar to Zoya although their free version offers fewer shares and you would need to pay to see all stocks. They also offer a detailed report assessing different aspects of each company "finanaica, operational, etc" as well as a discussion forum. They have a detailed page on the criteria they use. The user interface is slightly busier and less user friendly.
Islamicly analysis of Microsoft stock - HalalInvestors
This is one of my favourite websites, run by Rakaan Kayali who also runs the Practical Islamic Finance youtube channel. Rakaan studied finance and offers a lot of advice as well as analysis of individual stocks on his channel and also his website Halalinvestors. He offers a unique perspective, is usually more careful and conservative when it comes to assessing for halalness. For example, he argues some of the standards used by other systems use arbitrary cut offs based on "qiyas" or deduction from situations from the life of the prophet and applying this to today's financial systems. The paid version of his site offers detailed insights and analysis of stock, going beyond just the standards.
Halal investors report card (free version) - The last option is to look at each company's annual reports yourself and analyse their numbers like interest expense and interest income, etc but you will need to either have studied accounting or spent a great amount of time learning this. Some websites offer helpful analysis like SimplyWallStreet.
Let's say you have picked a stock, saw on Zoya that it is sharia compliant, do you go ahead and invest in it? No, you need to know if you are actually going to make some profit! There is a bit more work to do but hopefully not that complicated.
The business itself
- Do they sell a product/service that you've heard of or used?
- Is it an established company or a new one?
- Have they been mentioned in the news/social media recently? Use the free Yahoo Finance site and app to get all the latest news for specific shares and also get alerts. I use this one daily. Remember to take what so called "experts" say with a pinch of salt. Focus on the facts and ignore wild predictions or hyped opinions as many of them are biased.
More financial stuff
The stock is halal but:
- How is the company handling its debt?
- Do they have enough cash flow?
- What is they growth potential, their PE ration, etc
- How volatile is the share price
- Is there any recent insider trading?
Again you can use SimplyWallStreet and Yahoo! Finance to read experts analysis and news.
Beyond halalness: ESG ratings (environmental, social, governance)
This is about how comfortable you are investing in a company, even if the Islamic financial screen says it is halal to invest in them. For example:
- What is the business impact on the environment?
- Are they involved in any political issues, human rights abuses, etc? For example, Apple have been accused of using Uighur Muslims as forced labour.
- How does the company treat its employees and customers?
And so on. This, I can argue, is also related to halalness but basically also depends on you personally and how comfortable and willing are you to use them as an investment. Non-Muslims are also becoming interested in this and it is called "ethical or responsible investing".
Best Halal Stocks List [US & UK 2021]
- Adobe
- Microsoft
- Intel
- nVidia
- AMD
- ETSY
- Coursera
- Johnson & Johnson
- Tesla
- ExOne Co
- Upwork
- Teladoc
- DropBox
- Alphabet Inc (Google)
- Snowflake
- Unilever
- Shopify
- Abbott Labs
- Home Depot
- DuPont
- Also Crowstrike, ASML holding, Medtronics and many others.
Which App Should You Use For Halal Investing?
There are so many online websites (online brokers) and a lot of them also have mobile apps. For a beginner like myself and you, we are much safer investing long term (3+ years) in well established companies with a large market cap. In the US, there is Fidelity, Ameritrade and M1Finance.
In the UK, there is AJ Bell which is one of the most established brokers. AJ Bell charge a small fee with each trade so you should keep this to a minimum (i.e. long term investing, you buy stocks and leave them for a few years). The one I currently use is Trading 212 as it offers free trading so if you feel you want to try doing some shorter term investments you don't have to worry about the fees. There are other fees like exchange rates, etc but these are small. The other advantage with Trading 212 is that you can open a practice account and use virtual money to try and see what would happen if you invest x amount of money is y stock etc. It is exactly similar to real investing except you are just practicing and not payign anything. One disadvantage of Trading 212 is that it might not have access to ALL stocks you want in the world, however, they literally have thousands of stocks so as a beginner investing in American, UK and EU markets you should be fine.
For UK residents, make sure you open a Stocks & Shares ISA account as it allows you £20,000 tax-free (for 2020-21) as opposed to a regular investing account. You just need to be over 18 years old and be a UK resident AND not a US tax-payer or citizen.
However, you must know which shares and trading practices are haram so you can avoid them. Here is a quick summary of haram stock trading:
- Stocks not meeting halal criteria as above or companies that rely on haram business (e.g. alcohol, tobacco, pornography, etc).
- CFD.
- Leverages (anything you see with x2, x3 etc in the stock name.
- Options.
- Bonds: unfortunately most of them are haram. The Islamic alternative is Sukuk. Wahed Invest is the easiest way to access Sukuk.
What about Zakat? What do I need to pay?
Depending on which school of thought you follow, you would need to pay Zakat on your profits but also maybe on your capital. Here is a detailed review from HalalInvestor.net detaling the method you can calculate Zakat. The website Islamic Finance Guru also has a service to help you with this if you can't make the calculation on your own. Another thing to remember if the purification of your profits if you invest in companies that have some income that is from haram sources or questionable. You can do this yourself or if you use Wahed, the roboadvisor, they do this for you.
Summary:
When it comest to finding halal stocks and investing in them you have 2 main options:
A) Find a halal online broker to invest the money for you, pick stocks and funds for you, for a fee. All you need to do is pay money and choose the level of of risk you are happy with. An example of this is using Wahed Invest.
B) Use a few websites/apps to check individual stocks/ETFs to see if thet are halal and if they are good investment options and then invest in them. An example of this using Trading 212 to invest (without a fee) and use Zoya to determine halalness and Yahoo Finance to read the latest news and expert analysis and predictions.
In the next post, we will discuss how to invest safely with minimum risk for beginners. What shares are you interested in at the moment and what platform are you using?
Disclaimer: your capital is at risk when you invest, I'm not a financial advisor so please discuss with an advisor if you want to get professional advice and with a Muslim scholar if you want help with the Islamic position on stocks and shares.
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