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UnitedHealth Beats: Healthcare ETFs in Focus

The largest U.S. health insurer UnitedHealth Group UNH reported stronger-than-expected second-quarter 2020 results wherein it breezed past the Zacks Consensus Estimate on both earnings and revenues.

Earnings per share came in at $7.12, well above the Zacks Consensus Estimate of $5.18 and nearly doubled the year-ago earnings of $3.60. Revenues rose 2.5% year over year to $62.14 billion and edged past the estimated $63.81 billion. Strong results were driven by unprecedented period of payment deferrals as elective surgeries and treatments were postponed or canceled during the peak of the coronavirus pandemic.

Medical ratio (a measure of the percentage of premiums paid out for medical services) declined to 70.2% from 83.1% in the year-ago levels. The company affirmed its full-year adjusted earnings per share guidance of $16.25-$16.55.

Following its earnings release, UNH shares initially rose but close the day with down 1.4%. The stock currently has a Zacks Rank #2 (Buy) and VGM Score of B. It belongs to a favorable Zacks industry (placed at the top 12% of 250+ industries), which underscores its potential to outperform in the weeks ahead (see: all the Healthcare ETFs here).

Given this, investors could tap the company’s growth with ETFs having the largest allocation to this health insurance giant. 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 48 securities in its basket and UNH occupies the top position with 23% share. The fund has amassed $958.7 million in its asset base, while volume is good at about 86,000 shares per day, on average. It charges 43 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: ETFs to Play New Trends Triggered by COVID-19).

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 159 stocks in its basket with UnitedHealth taking the top spot at 11.6%. The fund has accumulated $14.3 million in its asset base and sees a meager volume of 7,000 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 $23.6 billion in its asset base and trades in heavy volume of around 13.4 million shares. Expense ratio comes in at 0.13%. In total, the fund holds 62 securities in its basket with UNH taking the second spot at 7.6% of the assets. Pharma accounts for 29.4% 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 #2 with a Medium risk outlook.

iShares U.S. Healthcare ETF IYH

This fund offers exposure to 122 securities by tracking the Dow Jones U.S. Health Care Index. Here again, UnitedHealth is the second firm accounting for 6.9% of the total assets. In terms of industrial exposure, pharma takes the top spot at 28%, followed by health care equipment (23.5%) and biotech (19.8%). The product has amassed $2.4 billion in its asset base, while charging 43 bps in annual fees. It trades in moderate volume of around 105,000 shares a day and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Q2 Earnings Likely To Plunge: Invest in These Sector ETFs).

Vanguard Health Care ETF VHT

This ETF tracks the MSCI US Investable Market Health Care 25/50 Index and holds 432 stocks in its basket. Of these, UNH takes the second spot with 6.3% allocation. Pharma takes the largest share at 26.9%, 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 $11.2 billion and average daily volume of about 358,000 shares. It charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

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UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report

Health Care Select Sector SPDR ETF (XLV): ETF Research Reports

Vanguard Health Care ETF (VHT): ETF Research Reports

iShares U.S. Healthcare ETF (IYH): ETF Research Reports

iShares U.S. Healthcare Providers ETF (IHF): ETF Research Reports

iShares Evolved U.S. Healthcare Staples ETF (IEHS): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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