The largest U.S. health insurer UnitedHealth Group UNH reported better-than-expected first-quarter 2023 results, breezing past the Zacks Consensus Estimate for earnings and revenues. The company lifted its full-year earnings guidance.
Despite robust results, UNH shares dropped 2.7% on the day. Investors could tap the opportunity by investing in ETFs having the largest allocation to this health insurance giant. These include iShares U.S. Healthcare Providers ETF IHF, Harbor Health Care ETF MEDI, Health Care Select Sector SPDR Fund XLV, iShares U.S. Healthcare ETF IYH and Vanguard Health Care ETF VHT.
Earnings in Focus
Earnings per share came in at $6.26, topping the Zacks Consensus Estimate of $6.24 and increasing 14% from the year-ago quarter. Revenues grew 15% year over year to $91.9 billion and were above the estimated $89.3 billion. The revenue growth marks the company’s fifth consecutive quarter of double-digit revenue increases. Solid results were once again powered by double-digit revenue gains from its Optum division.
UnitedHealthcare added 655,000 Medicare Advantage members and 570,000 Medicaid members during the quarter. Medical ratio (a measure of the percentage of premiums paid out for medical services) rose slightly to 82.2% from 82% in the year-ago quarter.
The health insurer raised its 2023 earnings per share guidance from $24.40-$24.90 to $24.50-$25.00. The company is winning by “offering more health services to more people and connecting consumers with greater access to high-quality, affordable care.” Notably, UnitedHealth is among the largest players in the Medicare Advantage market, where private insurers offer an alternative to the original Medicare – the federal government’s health insurance plan for people aged 65 and older or those with certain disabilities.
However, worries over high costs next year due to policy changes for government-backed health insurance plans remained headwinds. U.S. health insurers have been under pressure since February when the government proposed new rules for an audit program to avoid overpayment.
ETFs in Focus
Let’s delve into each ETF below.
iShares U.S. Healthcare Providers ETF (IHF)
iShares U.S. Healthcare Providers ETF follows the Dow Jones U.S. Select Healthcare Providers Index with exposure to companies that provide health insurance, diagnostics and specialized treatment. In total, the fund holds 65 securities in its basket, and UNH occupies the top position with a 23.6% share.
iShares U.S. Healthcare Providers ETF has amassed $1.2 billion in its asset base, while volume is light at about 33,000 shares per day, on average. It charges 39 bps in annual fees and has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.
Harbor Health Care ETF (MEDI)
Harbor Health Care ETF invests primarily in equity securities principally engaged in the research, development, production, or distribution of products and services related to the healthcare industry. It holds 34 stocks in its basket, with UNH taking the top position at 15.8% share.
Harbor Health Care ETF has accumulated $3.7 million in its asset base since its debut last November while trading in an average daily volume of 100 shares. It charges 80 bps in annual fees.
Health Care Select Sector SPDR Fund (XLV)
Health Care Select Sector SPDR Fund is the most-popular healthcare ETF and follows the Health Care Select Sector Index. It holds 65 securities in its basket, with UnitedHealth taking the top spot at 9.6% of the assets. Pharma, healthcare providers & services, and healthcare equipment & supplies take the largest share at 29.7%, 22% and 19.7% share, respectively, from a sector look.
Health Care Select Sector SPDR Fund has AUM of $39.6 billion in its asset base and trades in a heavy volume of around 10 million shares. The expense ratio comes in at 0.10%. XLV has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
iShares U.S. Healthcare ETF (IYH)
iShares U.S. Healthcare ETF offers exposure to 112 U.S. healthcare equipment and services, pharmaceuticals, and biotechnology companies by tracking the Russell 1000 Health Care RIC 22.5/45 Capped Gross Index. Here again, UnitedHealth is the top firm, accounting for 9.1% of the total assets. In terms of industrial exposure, pharma takes the top spot at 29.7%, followed by healthcare equipment (19%) and biotech (18.3%).
iShares U.S. Healthcare ETF has amassed $3.3 billion in its asset base, while charging 39 bps in annual fees. It trades in a moderate volume of around 41,000 shares a day and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Vanguard Health Care ETF (VHT)
Vanguard Health Care ETF tracks the MSCI US Investable Market Health Care 25/50 Index and holds 412 stocks in its basket. Of these, UnitedHealth takes the top spot with a 7.8% allocation. Pharma takes the largest share at 26.7%, while biotech and healthcare equipment round off the top three spots.
Vanguard Health Care ETF is also one of the most popular and liquid ETFs, with AUM of $17.3 billion and an average daily volume of about 193,000 shares. It charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.Source: Yahoo!finance