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UnitedHealth Falls Despite Q1 Beat, Healthcare ETFs in Focus

Sweta Killa

The largest U.S. health insurer UnitedHealth Group UNH reported robust first-quarter 2019 results. The company breezed past the Zacks Consensus Estimate on both earnings and revenues and raised its full-year forecast (see: all the Healthcare ETFs here).

Earnings per share came in at $3.73, well above the Zacks Consensus Estimate of $3.60 and 23% higher than the year-ago quarter. Revenues rose 9.3% year over year to $60.31 billion, breezing past the estimated $59.68 billion. Robust results were credited to growth in its Optum services business, including its pharmacy benefits unit. Notably, Optum revenues increased 11.7% year over year. The company increased its adjusted earnings per share guidance for 2019 to $14.50-$14.75 from $14.40-$14.70.

Despite the robust results, UNH shares dropped 4% at the close on the day on the “Medicare for All” push. While this plan has little chance of getting through a politically divided Congress, some Democrats support the idea.

The stock currently has a Zacks Rank #2 (Buy) and belongs to a top-ranked Zacks industry (top 30%). Further, it has a VGM Score of A, which underscores its potential to outperform in the weeks ahead.

Given this, ETFs having the largest allocation to this health insurer giant are in focus. We have highlighted them in detail below:

iShares U.S. Healthcare Providers ETF IHF

This 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 47 securities in its basket and UNH occupies the top position with 21.9% share. The fund has amassed $770.4 million in its asset base, while volume is good at about 107,000 shares per day on average. It charges 43 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Top ETF Stories of Q1).

iShares Evolved U.S. Healthcare Staples ETF IEHS

This actively managed ETF employs data science techniques to identify companies with exposure to the health care staples sector. It holds 155 stocks in its basket with UnitedHealth taking the top spot at 12%. The fund has accumulated $4.2 million in its asset base and sees meager volume of 5,000 shares. It charges 18 bps in annual fees.

Health Care Select Sector SPDR Fund XLV

The most popular health care ETF, XLV follows the Health Care Select Sector Index. This fund manages nearly $18.4 billion in its asset base and trades in heavy volume of around 11.4 million shares. Expense ratio comes in at 0.13%. In total, the fund holds 62 securities in its basket, with UNH taking the third spot at 6.5% of the assets. Pharma accounts for 32.6% share from a sector look, while health care equipment and supplies, health care providers and services, and biotech have double-digit exposure each. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Healthcare's Near-Term Prospects Bright: 3 ETFs in Focus).

iShares U.S. Healthcare ETF IYH

This fund offers exposure to 129 securities by tracking the Dow Jones U.S. Health Care Index. Here again, UnitedHealth is the third firm accounting for 6% of the total assets. In terms of industrial exposure, pharma takes the top spot at 31.1%, followed by health care equipment (22.7%) and biotech (18.8%). The product has amassed nearly $2.2 billion in its asset base, while charging 43 bps in annual fees. It trades in good volume of around 144,000 shares a day and has a Zacks ETF Rank #1 with a Medium risk outlook (read: Beat Q1 Earnings Woes With These Sector ETFs & Stocks).

Vanguard Health Care ETF VHT

This ETF tracks the MSCI US Investable Market Health Care 25/50 Index and holds 361 stocks in its basket. Of these, UNH takes the third spot with 5.9% allocation. Pharma takes the largest share at 30%, while health care equipment and biotech round off the top three spots. VHT is also one of the popular and liquid ETFs with AUM of $9.1 billion and average daily volume of about 318,000 shares. It charges 10 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook.

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