Sector breakdown · AAOIFI Standard 21 pass rates

Halal compliance, sector by sector

Roughly 12 percent of indexed stocks pass the AAOIFI Standard 21 screen. That headline number hides a much more interesting story underneath: the pass rate ranges from about 2 percent in Financials to about 50 percent in Energy. This page walks through all 11 GICS sectors, explains the primary binding test for each, and compares the resulting universe mix to S&P 500 sector weights. The structural tilt halal investing produces is the central thing to understand before committing to a Shariah-compliant portfolio.

Pass rates by sector

The 11 GICS sectors, ranked

Pass rate is computed as the fraction of indexed tickers in each sector that pass all four AAOIFI Standard 21 tests. The figures below are approximate steady-state values; the exact numbers shift slightly each quarter as fundamentals are restated.

Sector	Pass rate	Primary binding test	S&P 500 weight
Energy	~50%	Debt ratio	~4%
Healthcare	~40%	Debt ratio (biotech)	~12%
Industrials	~35%	Debt ratio	~8%
Consumer Staples	~35%	Primary business (alcohol, tobacco)	~6%
Information Technology	~30%	Liquid-assets ratio	~30%
Consumer Discretionary	~30%	Primary business (gambling, leisure)	~10%
Communication Services	~30%	Primary business (media content)	~9%
Materials	~30%	Debt ratio	~2%
Real Estate	~25%	Primary business (mortgage REITs)	~3%
Utilities	~20%	Debt ratio	~2%
Financials	~2%	Primary business (banks, insurance)	~13%

Sector commentary

What drives each sector's pass rate

Information Technology (~30 percent pass)

Tech is the largest sector by S&P 500 weight and one of the most populated in the compliant cohort. The primary-business test is almost never binding - semiconductor designers, semiconductor manufacturers, enterprise software vendors, productivity software, IT services consultants, hardware OEMs, and infrastructure software companies are all permissible primary businesses. The debt ratio test is rarely binding either; tech companies historically carry net cash rather than net debt. What knocks tech names out is the liquid-assets ratio test (test 4): cash-rich balance sheets, accounts receivable from large enterprise customers, and short-term investments can together represent more than 70 percent of market cap for a smaller-cap tech company whose operating business is still maturing. Apple, Microsoft, NVIDIA, Alphabet, Cisco, Oracle, Adobe, ASML, TSMC, and most of the established large-caps pass cleanly.

Healthcare (~40 percent pass)

Healthcare splits into pharma, biotech, medical devices, healthcare equipment, healthcare distributors, healthcare facilities, and managed care. Pharma and medical-device large-caps pass at high rates because their primary business is unambiguous and their balance sheets are equity-financed. Biotech is the lower-pass-rate sub-sector because of the leverage and cash-pile issues. Managed care has occasional issues with the insurance overlap but typically passes when the business model is care-provision rather than insurance per se. Johnson & Johnson, Pfizer, Merck, Eli Lilly, Roche, Novartis, AstraZeneca, Sanofi, Abbott, Medtronic, and Stryker are representative passes.

Energy (~50 percent pass)

Energy has the highest pass rate of any sector, largely because the integrated oil-and-gas majors carry surprisingly modest debt ratios relative to their market capitalisations once the trailing 36-month average is applied. Upstream exploration-and-production is more capital-intensive and fails more often. Midstream pipeline operators and refining-and-marketing pass selectively. Renewable-energy operators are mixed depending on their financing structure. Exxon, Chevron, Shell, BP, TotalEnergies, ConocoPhillips, Equinor, and Saudi Aramco all clear the screen comfortably.

Industrials (~35 percent pass)

Industrials is the most heterogeneous sector for halal screening because it bundles aerospace and defence, capital goods, commercial services, professional services, ground transportation, air freight and logistics, machinery, building products, and electrical equipment. The pass rate of about 35 percent reflects the average. Aerospace primes occasionally fail the primary-business test if their weapons division is large enough; commercial-services and professional-services names tend to pass cleanly; transportation companies vary on debt. Caterpillar, Deere, Honeywell, 3M, Lockheed Martin (borderline), Boeing (borderline), Union Pacific, FedEx, and UPS are representative cases.

Materials (~30 percent pass)

Materials is mostly chemicals, mining, metals, and forestry products. The primary-business test rarely binds. The debt ratio test binds frequently because materials companies are capital-intensive and finance their plants with long-term debt. Linde, Sherwin-Williams, Air Products, Ecolab, Newmont, BHP, and Freeport-McMoRan are representative; the pass rate of around 30 percent reflects the leverage cycle of the broader sector.

Consumer Staples (~35 percent pass)

Consumer Staples covers food and beverages, household products, personal-care products, food retail, and tobacco. The primary-business test is the binding constraint: alcohol producers (Diageo, AB InBev, Constellation) and tobacco producers (Philip Morris, Altria, BAT) are excluded structurally. Food and non-alcoholic beverage producers (Nestle, Coca-Cola, PepsiCo, Procter & Gamble, Unilever, Colgate-Palmolive) pass at high rates. Food retailers (Costco, Walmart) are mostly fine although the alcohol-revenue fraction sometimes pushes test 3 into borderline territory.

Consumer Discretionary (~30 percent pass)

Consumer Discretionary is automobiles, automotive components, household durables, leisure products, textiles, apparel, hotels, restaurants, and broadline retail. The primary-business test excludes casinos and gambling operators (Las Vegas Sands, MGM, Wynn) structurally. Hotels with material alcohol revenue often land in borderline (Hilton, Marriott, Hyatt). Restaurants vary by alcohol exposure (McDonald's passes cleanly; Starbucks passes cleanly; full-service restaurants with bar revenue can fail test 3). Automotive OEMs pass on the primary-business test but variously fail on debt ratio (Ford, GM) depending on the cycle. Amazon, Tesla, and Home Depot are representative passes.

Communication Services (~30 percent pass)

Communication Services bundles diversified telecom, wireless telecom, media, entertainment, interactive media, and interactive home entertainment. Telecom operators usually fail on debt (high-leverage infrastructure businesses). Media and entertainment companies often have content-related test-3 issues (mature content exposure flagged for borderline). Interactive media (Meta, Alphabet's YouTube) pass on the primary business although some scholars flag the advertising business model as questionable. The sector pass rate of around 30 percent is the average across these heterogeneous sub-sectors.

Real Estate (~25 percent pass)

Real Estate is dominated by REITs. Mortgage REITs (Annaly, AGNC) are excluded structurally - their primary business is holding pools of interest-bearing mortgages. Equity REITs pass selectively depending on (a) property mix and (b) leverage. Industrial REITs (Prologis), residential REITs (AvalonBay, Equity Residential), healthcare REITs (Welltower, Ventas), and data-centre REITs (Equinix, Digital Realty) pass at higher rates than retail and office REITs because their leverage profiles and tenant mixes are cleaner from a Shariah perspective.

Utilities (~20 percent pass)

Utilities is the lowest-pass-rate non-Financials sector because of the structural leverage. Regulated utilities are funded with long-term debt because their cash flows are predictable enough to support it; the same predictability that makes them defensive equity holdings also makes them fail the AAOIFI debt ratio test more often than not. NextEra is a notable exception (high renewables exposure with a mix of equity and debt funding) but most large utilities (Duke Energy, Southern, Dominion, Exelon, Edison International) sit above the 30 percent threshold.

Financials (~2 percent pass)

Financials is excluded almost entirely. Conventional banks (JPMorgan, Bank of America, Wells Fargo, Citigroup), conventional insurance (Allianz, AIG, Prudential), conventional brokerages (Morgan Stanley, Goldman), and conventional asset managers with material proprietary-trading exposure all fail the primary-business test. The 2 percent that passes consists of payment networks (Visa, Mastercard), financial-data businesses (S&P Global, MSCI, Moody's have varying compliance depending on credit-rating revenue treatment), exchanges (some pass on primary-business but variously fail on test 2 or test 4), and Islamic banks listed in the Gulf and Southeast Asia.

Versus the broad market

The structural tilt halal investing produces

When you weight the compliant universe by market cap rather than by ticker count, the sector mix looks very different from the S&P 500. The compliant cohort runs heavier in Information Technology (often above 40 percent versus the S&P's 30 percent), heavier in Healthcare (often around 15-18 percent versus 12 percent), and meaningfully heavier in Energy (10-12 percent versus 4 percent). It runs effectively zero Financials weight versus the S&P's 13 percent. Utilities is light. Consumer Discretionary is light because gambling and casino exposure are excluded. Communication Services is mixed depending on which media-content names pass test 3.

The practical implication for a halal investor is that a market-cap-weighted compliant portfolio is not a market-neutral portfolio. It has factor exposures - over-weight to growth and quality, under-weight to value (because so much of value historically sits in Financials), neutral-to-overweight on momentum. In years when growth and quality lead, the halal cohort tends to outperform. In years when value and Financials lead, it tends to underperform. The 7-framework consensus screen invest-like runs on top of the halal cohort partially offsets this by favouring quality and durability over pure growth, but the sector tilt is real and unavoidable for a strict-compliance portfolio.

For an investor who wants a closer-to-market sector mix, the response is to actively cap the Tech allocation, over-weight the smaller compliant sectors (Materials, Real Estate, Energy), and use the per-sector compliant lists invest-like publishes to fill specific gaps. The /halal/ landing page and per-sector hub pages expose the compliant universe in a form that supports this active balancing.

Frequently asked

Sector-level questions

Which sectors have the highest halal compliance rates?

Healthcare leads at roughly 40 percent of stocks passing the AAOIFI Standard 21 screen, followed by Energy at about 50 percent on a narrower universe basis. Information Technology, Industrials, and Materials cluster in the 30-35 percent range. The structural reason is straightforward: these sectors host the largest population of operating businesses whose primary activity is not on the AAOIFI exclusion list and whose capital structures tend to stay below the 30 percent debt ratio threshold.

Why is Financials so heavily excluded?

Conventional commercial banks earn the majority of their income from interest on loans, and AAOIFI Standard 21 excludes interest-bearing income structurally. Insurance companies are excluded because conventional insurance is built on premiums-and-claims structures whose underlying reserves are invested in interest-bearing securities. The only common Financials sub-sectors that pass are payment networks like Visa and Mastercard, certain financial-data and ratings businesses, and a small number of Islamic banks listed in Gulf and Southeast Asian markets.

How does the halal universe sector mix compare to the S&P 500?

The S&P 500 has a Financials weight around 13 percent and a Technology weight around 30 percent. The halal-compliant universe has effectively zero Financials weight (only a handful of Islamic banks pass, and they are not in the S&P 500) and a much higher Technology weight, often above 40 percent. Energy and Healthcare are also overrepresented relative to broad indices. Communication Services and Consumer Discretionary are underrepresented because of media-content and gambling exclusions respectively.

Is a sector-concentrated portfolio a problem for halal investors?

It is a feature, not a bug, of Shariah-compliant investing - but it is a real consideration. A halal portfolio that mirrors the compliant universe will run heavier in Tech, Healthcare, and Energy and lighter in Financials, Utilities, and Consumer Discretionary than a broad index. The investor has two reasonable responses: accept the structural tilt (and the corresponding factor exposure) as the natural outcome of the screen, or actively balance within the compliant universe by capping the Tech allocation and over-weighting the smaller compliant sectors. invest-like exposes per-sector compliance counts so this decision can be made transparently.

Why do Utilities have such a low pass rate despite their boring-business profile?

Utilities are the highest-leverage sector in the S&P 500 universe. Regulated electric, gas, and water utilities are funded with large amounts of long-term debt because they own multi-decade fixed assets and their cash flows are stable enough to service that debt. The debt ratio test is the binding constraint - a typical regulated utility runs a debt-to-market-cap ratio above 30 percent, sometimes well above. The primary-business test is rarely an issue for utilities; it is the leverage that excludes them.

Do biotech companies pass the screen?

Biotech is a mixed case. Most pharmaceutical companies (large-cap and mid-cap) pass on both the primary-business and debt ratio tests because their products are health-related and their capital structures rely heavily on equity rather than debt. Smaller-cap biotech, especially pre-revenue research-stage names, often fail test 4 (liquid-assets ratio) because most of the market cap consists of cash raised from equity offerings that has not yet been deployed. The overall Healthcare sector pass rate of about 40 percent is the weighted average across these two regimes.

How are REITs treated?

Real estate investment trusts split into two categories. Equity REITs - those that own and operate physical properties - can pass the screen if their property mix is Shariah-compliant (no concentration in alcohol-serving venues, gambling properties, or conventional bank branch portfolios) and their leverage stays below 30 percent. Mortgage REITs - those that hold pools of interest-bearing mortgages - are excluded structurally under the primary-business test because their income is riba. About 25 percent of the broader Real Estate sector passes, dominated by industrial, residential, and healthcare equity REITs.

Continue reading

Landing page

/halal/

Live cohort counts, top-25 compliant picks, the AAOIFI 4-test summary.

AAOIFI Standard 21

/halal/aaoifi-standard-21/

Full-length explainer of the standard underlying every per-stock verdict.

AAOIFI vs DJII vs MSCI Islamic

/halal/vs-dow-jones-islamic/

Threshold-by-threshold comparison of the major Islamic equity screens.

Halal ETFs survey

/halal/etfs/

SPUS, HLAL, UMMA, ISDE, ISWD and friends.

By country

/halal/countries/

Regulatory landscape and exchange coverage across major markets.

Full methodology

/methodology/halal/

Every test, every threshold, every ticker override explained.

Pass rates above are steady-state approximations. The exact compliant count by sector shifts each quarter as fundamentals are restated and as market caps drift. The invest-like.com halal screen is a mechanical implementation of AAOIFI Standard 21 - a structured filter, not a fatwa. Educational only. Not investment advice.