Is the S&P 500 Halal? Smart US 500, Kernel and Index Funds for NZ Muslims (2026)

No. The S&P 500 is not halal as a whole, and neither is any fund that tracks it, including the Smart US 500 ETF on the NZX, Kernel's two S&P 500 funds and InvestNow's Foundation Series US 500 Fund. The index holds the largest listed US banks, insurers, brewers, casino operators and defence contractors alongside Apple and Nvidia, and SP Funds, which runs the AAOIFI-screened version of the same index, states that only about 200 of the 500 companies pass the Shariah screen. The fix is not to abandon US shares. It is to hold the screened 200 instead, which a New Zealander can do through Hatch or Sharesies for a fee that is lower than most people expect. The wider method is on our halal investing hub; this page rules on the plain tracker.

What the S&P 500 actually holds and why it fails the screen

Kernel describes its fund as owning 500 US companies listed on the New York or Nasdaq exchanges, weighted by size. As at 31 August 2026 its largest holdings were Nvidia at 8.05%, Apple at 7.00%, Microsoft at 5.67%, Amazon at 3.83%, Alphabet at 2.99% and Broadcom at 2.64%. Those six names are the ones that usually pass a Shariah screen, and they are why the argument for the index sounds plausible. The problem sits below them. An index of the 500 largest US companies must by construction include the largest US banks, card networks that earn interest, life and general insurers, brewers and distillers, tobacco companies, casino and hotel groups, weapons manufacturers and media companies whose revenue is adult or gambling-adjacent. None of those pass the business-activity screen set out in the AAOIFI stock screening rules NZ investors rely on, regardless of how profitable they are.

The financial-ratio screen removes a second group. SP Funds' page for its SPUS ETF, which tracks the S&P 500 Shariah Industry Exclusions Index, explains that the surviving companies must have debt below 30% of market capitalisation, and that approximately 200 stocks from the S&P 500 meet the full criteria. Put the other way round, roughly three of every five companies in the index fail on either business or balance-sheet grounds, by count rather than by weight. A unit in a tracker fund is a proportional slice of every one of them.

Which New Zealand funds track it and what they charge

Kiwis mostly do not buy the US-listed trackers directly. They buy a New Zealand-domiciled PIE fund that holds the index, because the PIE wrapper caps tax at 28% and avoids the foreign investment fund calculation. Three issuers dominate, and Sharesies and InvestNow distribute them.

Two notes on cost. Kernel's pricing page says its Core plan is free, charges no transaction fees and has no minimum, so the 0.25% management fee is the whole cost of the unhedged fund. InvestNow's fund page lists 0.03% with an asterisk and points to a Product Disclosure Statement dated 13 April 2023; read that document for the full fee line before relying on the headline. Sharesies charges no transaction fee on managed funds, and for exchange-listed shares charges 1.9% up to a cap of $25 for NZX orders and USD 5 for US orders. Cheapness is not the issue with any of these; compliance is.

The argument that only a few percent is haram, and why the screening bodies reject it

The case for staying in the tracker runs like this: the banks and brewers are a minority of the index by weight, the rest is Apple and Microsoft, so hold the fund and give away the share of dividends that came from the bad names. It is a tempting argument because it is mostly arithmetic, and it is rejected by AAOIFI, by every mainstream screening standard and by the two screeners New Zealanders use, Zoya and Musaffa. The reason is where the screen is applied. Shariah screening is applied company by company, and the small tolerance it allows is for incidental impermissible income inside an otherwise permissible business, not for deliberately buying a basket that contains prohibited businesses. Owning a bank through a fund is still owning a bank.

There is a second reason the tolerance argument fails in 2026 that it might not have failed in 2010: the screened alternative exists and is cheap. When no compliant product was available, some scholars entertained a minority-share argument out of need. SP Funds has run an AAOIFI-screened S&P 500 ETF since 17 December 2019 with an expense ratio of 0.45%, and it is available to any New Zealander with a Hatch or Sharesies account. Need cannot be claimed for a product whose halal version costs twenty basis points more.

What the PIE wrapper changes and what it does not

A PIE is a tax status, not a Shariah status. Smart's ETF page says all its funds are PIEs with tax capped at 28%, and Kernel quotes returns at a 0% prescribed investor rate, which is useful for a comparison and irrelevant to the question of what the fund owns. If a fund holds JPMorgan, it holds JPMorgan whether or not Inland Revenue taxes it kindly. The one place the wrapper matters for a Muslim is the switch: a US-listed replacement such as SPUS is a foreign investment fund, and Hatch's pricing page notes that an investor with less than $50,000 invested overseas may not need to pay tax under those rules at all. The threshold, the methods and the paperwork are set out in the FIF and PIE rules for halal investors in NZ.

One small riba point that catches InvestNow users: InvestNow's own footer states that cash in its transaction account does not accrue interest to the investor, and that InvestNow keeps the interest to cover its costs. For a Muslim that is the right outcome by accident, since you receive no interest to purify, but it is worth knowing that the platform, not you, earns it.

If you already hold a tracker: sell, switch gradually, or purify?

For someone who holds Smart's USF or Kernel's S&P 500 fund today, the ruling is that the holding should be replaced, and the only live questions are timing and purification. The purification method for an index fund is the same as for any mixed portfolio and is described in the halal investing step NZ Muslims skip most: estimate the share of the fund's distributions that came from non-compliant companies and give that amount to charity without expecting reward. Most scholars treat the capital gain on the non-compliant portion the same way if the holding was bought knowingly, and more leniently if it was bought before the holder knew. Keep the fund's annual holdings report, because it is the only document that lets you do the sum honestly.

• Download the latest holdings list from the issuer and mark the companies that fail the business screen; the screeners will do this for you name by name.
• Work out the fraction of the year's distributions attributable to those names and set it aside for charity.
• Open a Hatch or Sharesies account if you do not have one and buy the screened equivalent in one or several tranches.
• Sell the tracker once the replacement is in place, or in stages if the position is large, and check with your accountant what the sale triggers under the PIE rules.
• Switch any auto-invest instruction that was feeding the tracker to the new fund the same day, because the drip is what rebuilds the problem.

The screened alternatives and how a Kiwi buys them

SPUS is the direct substitute. Its page states that it tracks approximately 200 S&P 500 stocks meeting the AAOIFI criteria, lists on NYSE Arca, charges 0.45%, and had net assets of USD 3,367.75 million at 10 September 2026. Since inception its market return to 30 September 2026 was 18.57% a year against 15.45% for the full S&P 500 total return index, which is history rather than a forecast but does answer the fear that screening must cost return. HLAL is the broader US alternative, and both are compared in our guide to halal ETFs available through Hatch and Sharesies.

The New Zealand-domiciled alternative is Always-Ethical, whose site says its investments are limited to ordinary shares of companies listed on US exchanges, with under 30% debt and a target of up to 50 holdings, and which describes its universe as the 350 or so S&P 500 names that fit its mandate. It is not an index fund and its fee structure is its own, but it is the only way to get screened US large-cap exposure inside a New Zealand fund without touching the FIF rules yourself.

Verdict: who should sell, who should switch gradually, and who was never affected

If you hold a plain S&P 500 tracker and you knew what was in it, sell it and buy SPUS or build a screened list; purify the distributions you received and do not wait for a better price, because the ruling does not improve with the market. If the position is large relative to your wealth and selling in one go would be reckless for tax or timing reasons, switch in stages over a few months with the auto-invest redirected on day one; the gradual path is a concession to prudence, not a loophole.

If your only exposure is through a default or balanced KiwiSaver fund, you were never choosing the S&P 500 at all, and the answer is the KiwiSaver switch covered in the halal KiwiSaver review rather than anything on this page. And if you are starting from nothing, skip the tracker entirely: the screened version has been available, liquid and cheap since 2019, and the halal stocks resources on this site will take you the rest of the way. Facts checked against sp-funds.com, kernelwealth.co.nz, smartshares.co.nz, nzx.com, investnow.co.nz, sharesies.nz, hatchinvest.nz, always-ethical.com on 10 September 2026.

Frequently asked questions

Is the Smart US 500 ETF halal?

No. The Smart US 500 ETF tracks the full S&P 500 Index, so it holds the banks, insurers, alcohol, gambling and defence companies that fail the Shariah business screen along with the technology names that pass. Its PIE status and NZX listing are tax and access features, not compliance features. The screened equivalent is SPUS, bought through Hatch or Sharesies.

Is Kernel's S&P 500 fund halal?

No, for the same reason. Kernel's fund holds all 500 companies in proportion to their size; its top six holdings at 31 August 2026 were Nvidia, Apple, Microsoft, Amazon, Alphabet and Broadcom, which would mostly pass a screen, but the fund also owns every bank and insurer in the index. Kernel's 0.25% fee and zero minimum are attractive; the portfolio is not compliant.

Are index funds halal in general?

Only when the index itself is screened. An index fund is halal if every company in the index passes the business and financial screens, which is true of the S&P 500 Shariah Industry Exclusions Index tracked by SPUS and of the indices behind HLAL, and false of the plain S&P 500, the NZX 50 and the MSCI World. The word index tells you nothing; the constituent list tells you everything.

Can I keep a tracker and just give away the haram portion of dividends?

Mainstream standards say no. Purification is the remedy for incidental impermissible income inside a compliant company, not a licence to hold prohibited businesses on purpose. Since an AAOIFI-screened S&P 500 ETF has existed since December 2019 at 0.45%, there is no necessity argument either. Purify what you have received, then replace the holding.

Is SPUS available in New Zealand and what does it cost to buy?

Yes. SPUS lists on NYSE Arca and can be bought through Hatch, which charges USD 3 per order and 0.5% to exchange currency, or Sharesies, which charges 1.9% of the order up to a cap of USD 5 with currency exchange charged separately. The ETF's own expense ratio is 0.45%. Because it is a foreign fund, the FIF tax rules apply above the threshold.

Does a PIE fund change whether an investment is halal?

No. A PIE is a New Zealand tax wrapper that caps the investor's tax rate at 28% and shifts the tax calculation into the fund. It says nothing about what the fund owns. A PIE holding the full S&P 500 is not halal; a PIE holding only screened companies would be. Judge the holdings, then enjoy the tax treatment if it applies.