Safety First: Defensive Moves for Muslim Investors This Spring

Written by Haider Saleem
Financial and Political Analyst | LinkedIn / X

Date: April 16, 2025

Introduction

Financial markets are facing a lot of uncertainty and volatility.

In this article, we explore the defensive investing strategies for Muslim investors who are rethinking their approach, including:

1. cash and their equivalence. 
2. low volatile stocks
3. gold
4. sukuk and multi-asset strategies

We also look at how fund managers and big businesses are putting up defenses. 

What’s Driving the Volatility?

In early April, U.S. President Donald Trump imposed a blanket 10% tariff on most imports, with specific levies on China rising as high as 145%. The result? A historic sell-off, with over $5 trillion wiped from global equity markets.

Financial stress has spilled across asset classes:

• U.S. Treasury bonds—typically seen as a safe haven—were hit by an unprecedented selloff​.
• Oil prices fell to four-year lows,
• Even gold experienced temporary declines as investors scrambled to cover losses elsewhere.

Some traders compared the upheaval to the COVID-19 panic of 2020 or the 2008 financial crisis, underlining how rapidly investor sentiment can shift in the face of unpredictable policy moves.

Building a Defensive Portfolio – Halal Style

Muslim investors have specific ethical boundaries based on Islamic principles. But within those boundaries, a variety of financial tools exist to help reduce risk and preserve wealth in turbulent markets.

1. Increase Cash or Cash Equivalents

Maintaining liquidity—meaning having quick access to your money without losing value—is often overlooked until it becomes essential. Cash holdings or halal-compliant money market funds can offer stability during market turbulence. During the recent sell-off, some conventional funds posted small gains over the same period that equity funds faced double-digit losses.

While cash is not a growth asset, its defensive role lies in its flexibility—it allows investors to avoid forced selling and provides the dry powder needed when better opportunities emerge.

2. Seek Low-Volatility, Shariah-Compliant Stocks

Low-beta stocks—those less sensitive to broad market movements—offer resilience during corrections—a term used when markets drop 10% or more from recent highs. These are typically found in sectors like healthcare, consumer staples, or regulated utilities, which tend to deliver steady earnings even during economic downturns.

Equal-weighted ETFs > Traditional ETFs

Equal-weighted ETFs (Exchange-Traded Funds) are investment funds traded on stock exchanges and give equal importance to each stock. They are different to traditional ETFs that invest more in bigger companies.

Equal-weighted ETFs have outperformed their market-cap-weighted counterparts. For example, during the recent downturn, the Invesco S&P 500 Equal Weight ETF declined -12.5%, while the traditional Vanguard S&P 500 ETF lost -19.5%.

3. Allocate to Gold

Gold remains a go-to asset during crises because it is seen as a ‘safe haven’—a physical, finite resource that tends to hold or increase in value when financial markets are unstable. Unlike currencies or stocks, gold is not directly tied to the performance of a company or government, making it attractive in uncertain times.

Over the past year, gold prices rose from $2,337 to more than $3,000 an ounce. Gold-backed ETFs like the iShares Physical Gold ETC saw gains exceeding 30%.

For Muslim investors, physical gold or Shariah-compliant ETFs are viable tools. However, be aware of currency volatility, especially since gold is denominated in USD. A way around this? Look at currency-hedged options may be preferred for those outside the dollar zone.

4. Consider Sukuk and Multi-Asset Strategies

Sukuk (Islamic bonds) provide fixed returns while maintaining Shariah compliance. These instruments are increasingly accessible through various global and regional funds. They have shown stability in downturns due to their fixed-income characteristics.

Multi-asset portfolios combining equities, sukuk, and cash equivalents provide a buffer during corrections. The traditional 60/40 strategy has been a widely used investment approach where 60% of a portfolio is allocated to stocks for growth and 40% to bonds (or sukuk for Shariah-compliant investors) for stability. The idea is that when stocks are volatile, the bond portion helps reduce overall risk and smooth out returns over time— tested, but funds like the Ruffer Investment Trust managed to post gains of 2.8% during the latest turmoil, thanks to a diversified allocation including gold and inflation-linked bonds.

What Fund Managers Are Saying

Across emerging and developed markets, top fund managers—professionals who decide how to invest money in pooled funds—are advising caution. Bloomberg reported that in India, for instance, a long-term Mutual Fund increased its cash holding to 24.5%, citing a lack of compelling buying opportunities. Whilst a publicly traded insurance company is advocating a preference for large-cap, dividend-paying stocks while steering clear of small caps and speculative growth plays.

Some managers believe that 2025 remains a year of fragility. Many prefer being positioned for “survival over growth,” echoing a more defensive mindset suited to managing uncertainty without overreacting.

Big Business is Defensive Too

A recent Deloitte survey of UK Chief Financial Officers (CFOs) revealed that finance leaders are adopting their most defensive strategy stance since the early days of the pandemic. With just 12% saying now is a good time to take on more risk, and 63% prioritizing cost control, even large companies are focusing on resilience. Concerns over tariffs, geopolitical uncertainty, and rising operating costs were dominant, showing that defensive thinking isn’t just for retail investors—it’s becoming the norm across global business strategy.

What Are Their Concerns?

Finance leaders cited tariffs and trade restrictions as the top geopolitical risks to their operations. Many are delaying major investments, cutting back on hiring, and modelling potential disruptions across their supply chains—all before the U.S. tariff announcement had even been made.

These findings underline how widespread and preemptive the shift toward capital preservation, focusing on protecting the money you’ve already invested, rather than chasing high returns, has become.

See the full Deloitte CFO Survey here.

What Should We Do?

Defensive investing doesn’t mean sitting on the sidelines. It involves careful selection, ongoing portfolio review, and risk management. Importantly, it means avoiding the common mistake of panic selling.

Historically, those who held on during crises—2008, 2020, and even the recent tariff turmoil—were better off than those who exited markets entirely. Staying invested, while adjusting exposure and trimming risk, tends to yield better long-term outcomes.

Key Takeaways

• Diversification is vital: Spread risk across halal asset classes—stocks, sukuk, gold, and cash.
• Think in cycles, not snapshots: Market downturns are temporary; a long-term view offers perspective.
• Liquidity matters: Keeping some capital in halal money market funds or cash gives you flexibility.
• Use safe havens strategically: Gold and sukuk can buffer volatility while remaining Shariah-compliant.
• Avoid emotional decision-making: Review your plan, but don’t let fear dictate strategy.

This spring may be unpredictable, but a thoughtful, diversified approach can help Muslim investors weather the storm with confidence and clarity.

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