Shariah-Compliant ETFs: SPUS as a Resilient Alternative in a High-Debt Era

In an era marked by rampant inflation, sky-high corporate debt, and a global economy teetering on the edge of uncertainty, investors are increasingly seeking alternatives to traditional market benchmarks like the S&P 500. While the index has long been a default choice for broad U.S. equity exposure, its reliance on high-leverage sectors and ethically ambiguous industries raises red flags in today's volatile climate. Enter the SP Funds S&P 500 Sharia Industry Exclusions ETF (SPUS), a compelling option for value-conscious, ethically aligned investors. This article unpacks why SPUS—structured around Shariah-compliant principles—offers a resilient, low-leverage alternative to the S&P 500, particularly in a world where debt-heavy strategies are no longer foolproof.

The Case for Low Leverage in a High-Debt World

The S&P 500's current makeup includes numerous companies with bloated balance sheets, a trend exacerbated by decades of easy money. In contrast, SPUS is engineered to exclude firms with debt-to-market capitalization ratios exceeding 30%. This strict screening process ensures the ETF is weighted toward companies with robust financial health, a critical trait in a macroeconomic environment where liquidity crunches and interest rate hikes can swiftly topple overleveraged corporations.

Consider the broader market context: As of July 2025, the average S&P 500 company carries a debt load that would have been unthinkable in a low-interest-rate world. SPUS sidesteps this risk by focusing on firms with conservative balance sheets, making it a natural hedge against the fragility of debt-driven growth. For instance, while the S&P 500's 6-month return stands at 6.20%, SPUS has matched it closely at 6.09%, proving that ethical constraints need not come at the expense of performance.

ESG Strengths: More Than a Buzzword

SPUS's ESG credentials are not just window dressing—they are a structural advantage. With an MSCI ESG Fund Rating of AA, it ranks among the top 10% of global ETFs for sustainability. This is no accident: the fund's holdings are selected based on ethical criteria that exclude industries like alcohol, tobacco, gambling, and weapons. The result is a portfolio that avoids not only moral controversies but also sectors prone to regulatory headwinds and reputational risk.

The ESG score of 7.35 out of 10 further underscores SPUS's alignment with long-term value creation. In a world where ESG investing is often criticized as a marketing tactic, SPUS's track record demonstrates that ethical screening can coexist with financial performance. For example, its exclusion of fossil fuels (a common ESG concern) has not hindered returns; instead, the fund has leaned into high-growth tech and healthcare stocks, which dominate its top holdings.

Performance: Outpacing the Index in Key Metrics

Since its inception in late 2019, SPUS has delivered 134.99% cumulative returns, outperforming the S&P 500's 132.45% over the same period. While the difference may seem marginal, it becomes more pronounced when examining annualized returns. The fund's 3-year annualized return of 20.79% bests the S&P 500's 19.71%, a gap that widens to 5.39% when comparing 5-year returns (17.38% vs. 11.99%).

This outperformance is partly attributable to SPUS's focus on value-driven, low-leverage companies. For example, its top holdings—Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT)—are not just market leaders but also exemplars of prudent financial management. These firms have weathered the inflationary storm better than their overleveraged peers, a trend reflected in SPUS's consistent outperformance.

Top Holdings: A Portfolio for the Future

SPUS's top 10 holdings account for roughly 45% of the fund's assets, a mix of tech giants and healthcare innovators. Apple (9.38%) and Microsoft (11.22%) dominate the list, reflecting the fund's tilt toward high-margin, R&D-driven firms. Amazon (6.30%) and NVIDIA (12.49%) further emphasize its exposure to the AI and cloud computing revolutions, sectors poised for sustained growth.

Notably, the fund includes Tesla (2.69%), a controversial pick in traditional Shariah-compliant circles due to its electric vehicle focus. However, SPUS's inclusion of Tesla underscores its pragmatic approach: the company's debt-to-market ratio is well within limits, and its environmental impact aligns with ESG goals. This balance between ethical rigor and market realities makes SPUS a forward-looking choice for investors seeking both resilience and relevance.

Why SPUS Stands Out in 2025

The fund's appeal lies in its ability to reconcile three often-conflicting priorities: ethical alignment, financial resilience, and competitive returns. For investors wary of the S&P 500's reliance on debt-laden sectors, SPUS offers a compelling alternative. Its 0.45% expense ratio is also competitive, especially given the active screening process that eliminates the need for additional ESG overlay fees.

Moreover, SPUS's slight discount to NAV (-0.10%) presents an opportunity for astute investors to acquire shares at a marginal discount, enhancing the cost-benefit equation. With $1.358 billion in assets under management and a stable 30-day SEC yield of 0.45%, the fund is well-positioned to scale without sacrificing its core principles.

Final Verdict: A Long-Term Play for Ethical Investors

For value-conscious investors seeking to navigate a high-inflation, high-debt world, SPUS is more than a niche product—it's a strategic asset. Its Shariah-compliant structure, ESG strengths, and low-leverage focus create a portfolio that's both ethically robust and economically resilient. While the S&P 500 remains a benchmark, SPUS demonstrates that alternatives can deliver comparable, if not superior, returns without compromising on values.

In a climate where debt is a double-edged sword and ethical missteps can tank valuations overnight, SPUS offers a roadmap to sustainable growth. For those willing to think beyond the S&P 500, this ETF is a testament to the power of disciplined, principle-driven investing.