Voo Vusa Ethical

This article breaks down exactly what is inside the most popular index funds, identifies where they fail ethical screening criteria, and presents alternatives that exist today for investors who want broad market exposure without the ethical compromise.

What You Actually Own When You Buy VOO or VUSA

VOO (Vanguard S&P 500 ETF, US-listed) and VUSA (Vanguard S&P 500 UCITS ETF, UK/EU-listed) track the same index: the S&P 500. This means you own a slice of all 500 companies in proportion to their market capitalisation.

VWRL (Vanguard FTSE All-World UCITS ETF) goes even broader, tracking over 3,700 companies across developed and emerging markets.

The appeal is obvious: one purchase, instant diversification, minimal fees. But diversification means you own everything — the good, the questionable, and the clearly non-compliant.

The Ethical Failures Inside VOO/VUSA (S&P 500)

Let us examine the top 20 holdings of the S&P 500 and score them against standard ethical screening criteria used in Islamic finance and broader ethical investing frameworks.

Out of just the top 20, we have at least 3 clear failures (Berkshire, JPMorgan, Bank of America) and 6 that require further scrutiny. These are not obscure holdings buried at position 450 — they are among the largest constituents driving your returns.

The Full Sector Problem: What’s Buried Deeper

The top 20 only tells part of the story. Across the full S&P 500, the exposure to non-compliant sectors is substantial:

Roughly 19% of the S&P 500 — nearly one-fifth of your investment — sits in sectors that clearly fail ethical screening. For VWRL, the global version, the exposure is similar because the US makes up approximately 60% of the index, and other developed markets carry their own banking, alcohol, and defence holdings.

Why “It’s Just the Index” Is Not a Valid Defence

A common response is: “I’m not choosing these companies, the index includes them.” This conflates passivity with neutrality. When you purchase an index fund, you are:

• Providing capital to every company in the index, proportionally

• Benefiting financially from their activities, including interest income, alcohol sales, and weapons contracts

• Voting (through the fund manager) at their shareholder meetings

• Making an active choice to accept all constituents without screening

Choosing not to screen is itself a choice. The fact that the selection is automated does not remove the investor’s responsibility for what they own. This principle is consistently upheld by Islamic finance scholars and is equally relevant for secular ethical investors.

The Alternatives: Ethical and Shariah-Compliant ETFs

Fortunately, the market now offers several alternatives that provide broad equity exposure with ethical screens applied. Here are the main contenders:

Performance Comparison: Does Ethical Screening Cost You Returns?

The most common objection to ethical ETFs is the assumption that screening reduces returns. The data tells a more nuanced story.

Because Shariah-compliant indices naturally exclude highly-leveraged financial companies (banks carry enormous debt relative to assets), they tend to be overweight in technology, healthcare, and consumer sectors. During periods where these sectors outperform — as they have for much of the past decade — Shariah-compliant indices have often matched or outperformed their conventional equivalents.

The fee differential is real — 0.03% versus 0.49% is significant over decades. But it must be weighed against the ethical cost of the cheaper option. For many investors, paying an extra 0.46% annually is a straightforward decision when the alternative is funding activities they fundamentally oppose.

It is also worth noting that the ethical ETF market is growing rapidly, and fees tend to compress as assets under management increase. The 0.49% charge today may look very different in five years.

The Fee Trade-Off: An Honest Assessment

We believe in transparency. Ethical ETFs are more expensive than conventional index funds. Here is what that looks like in practice:

That is a meaningful sum. We are not going to pretend otherwise. The question each investor must answer is whether the ethical alignment is worth approximately £3,000 per year on a six-figure portfolio. For many, the answer is unequivocally yes. For others, a blended approach — holding some compliant ETFs and screening individual equities for the remainder — offers a middle path.

The DIY Alternative: Building Your Own Screened Portfolio

For investors willing to do more work, there is another option: hold individual equities instead of an ETF, using screening tools to select only compliant companies.

This approach offers:

• Zero ongoing management fees

• Complete control over every holding

• Ability to weight positions based on conviction

• No exposure to any non-compliant company

The trade-off is time and complexity. Screening 500 companies, monitoring their compliance, and rebalancing periodically is not trivial. This is precisely where our tools add value.

How Our Screeners Help

We built our screening tools specifically for investors who want clarity on what they hold and what they can hold instead.

VWRL: The Global Version of the Same Problem

VWRL deserves specific mention because it is the default recommendation for UK investors seeking global diversification. It holds over 3,700 companies across 50 countries.

The non-compliant exposure is actually higher than VOO/VUSA because it includes:

• European banks (HSBC, UBS, BNP Paribas, Deutsche Bank)

• European alcohol majors (Diageo, Pernod Ricard, Heineken, AB InBev)

• Asian financials (Mitsubishi UFJ, ICBC, HDFC Bank)

• Global gambling (Flutter Entertainment, Las Vegas Sands)

• Additional defence contractors (Thales, Leonardo, Rheinmetall)

For global exposure with ethical screens, the iShares MSCI World Islamic UCITS ETF (ISWD) or Wahed’s UMMA ETF provide alternatives that apply consistent screening across all markets.

What to Do Next

The Bottom Line

“Just buy the index” is good advice for cost-conscious investors who have no ethical constraints. For everyone else, it is an oversimplification that papers over real problems.

VOO, VUSA, and VWRL are excellent products for what they are designed to do: provide cheap, broad, unscreened market exposure. But “unscreened” is the operative word. If you care about what your money funds — whether from an Islamic finance perspective, a broader ethical standpoint, or simply a values-alignment principle — these funds fail the test.

Alternatives exist. They cost more. They are improving. And for the first time in market history, an ethical investor can build a globally-diversified, fully-screened portfolio without sacrificing meaningful returns.

The tools to make informed decisions are available. Use them.

Deepen Your Understanding

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