Healthcare ETFs to Gain on UnitedHealth's Solid Q1 Earnings

The largest U.S. health insurer UnitedHealth Group (UNH) reported better-than-expected first-quarter 2020 results, breezing past the Zacks Consensus Estimate for both earnings and revenues. The company lifted its full-year earnings guidance.

Following the robust results, UNH shares hit a record high before closing at down 0.4% on Apr 14. Investors could tap the earnings strength with ETFs having the largest allocation to this health insurance giant, such as iShares U.S. Healthcare Providers ETF IHF, iShares Evolved U.S. Healthcare Staples ETF IEHS, Simplify Health Care ETF PINK, Health Care Select Sector SPDR Fund XLV and iShares U.S. Healthcare ETF IYH.

Earnings in Focus

Earnings per share came in at $5.49, topping the Zacks Consensus Estimate of $5.40 and increasing 3.4% from the year-ago quarter. Revenues grew 14.2% year over year to $80.1 billion and edged past the estimated $78.6 billion. The company saw double-digit revenue growth at both the Optum and UnitedHealthcare segments (see: all the Healthcare ETFs here).

Medical membership rose 335,000 from Q4, as UnitedHealthcare added 400,000 Medicare Advantage members and 155,000 Medicaid members, more than offsetting lower commercial membership. Medical ratio (a measure of the percentage of premiums paid out for medical services) increased to 82% from 80.9% in the year-ago quarter.

The health insurer raised its adjusted earnings per share view to $21.20-$21.70 from $21.10-$21.60. The Zacks Consensus Estimate is pegged at $21.69 for earnings per share.

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 71 securities in its basket, and UNH occupies the top position with a 23.5% share.

iShares U.S. Healthcare Providers ETF has amassed $1.4 billion in its asset base, while volume is light at about 31,000 shares per day, on average. It charges 42 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 5 ETFs to Add As Yield Curve Signals Recession).

iShares Evolved U.S. Healthcare Staples ETF (IEHS)

iShares Evolved U.S. Healthcare Staples ETF is an actively managed ETF employing data science techniques to identify companies with exposure to the health-care staples sector. It holds 169 stocks in its basket, with UnitedHealth taking the top spot at 14.9%.

iShares Evolved U.S. Healthcare Staples ETF has accumulated $41.9 million in its asset base and sees a meager volume of 3,000 shares. It charges 18 bps in annual fees.

Simplify Health Care ETF (PINK)

Simplify Health Care ETF seeks long-term capital appreciation by providing investors with multi-cap exposure to groundbreaking and innovative companies in biotech, medtech, gene therapy, and other fast-growing health care-related sectors. It holds 55 stocks in its basket with UnitedHealth occupying the top position at 10% of the portfolio.

Simplify Health Care ETF has accumulated $53 million in its asset base and trades in an average daily volume of 48,000 shares. It charges 50 bps in annual fees.

Health Care Select Sector SPDR Fund (XLV)

Health Care Select Sector SPDR Fund is the most-popular health care ETF and follows the Health Care Select Sector Index. It holds 65 securities in its basket, with UnitedHealth taking the top spot at 9.5% of the assets. Pharma, healthcare providers & services, and health care equipment & supplies take the largest share at 29%, 22.8% and 20.5% share, respectively, from a sector look.

Health Care Select Sector SPDR Fund manages nearly $39 billion in its asset base and trades in heavy volume of around 13.4 million shares. The expense ratio comes in at 0.10%. XLV has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Healthcare ETFs Outperform Amid Rising Uncertainties).

iShares U.S. Healthcare ETF (IYH)

iShares U.S. Healthcare ETF offers exposure to 117 U.S. healthcare equipment and services, pharmaceuticals, and biotechnology companies by tracking the Dow Jones U.S. Health Care Index. Here again, UnitedHealth is the top firm accounting for 9.2% of the total assets. In terms of industrial exposure, pharma takes the top spot at 29%, followed by health care equipment (19.8%) and biotech (16.7%).

iShares U.S. Healthcare ETF has amassed $3 billion in its asset base, while charging 41 bps in annual fees. It trades in a moderate volume of around 42,000 shares a day and has a Zacks ETF Rank #1 with a Medium risk outlook.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.

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