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Healthcare ETFs to Gain on UnitedHealth's Strong Q1 Earnings

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The largest U.S. health insurer UnitedHealth Group (UNH - Free Report) reported better-than-expected first-quarter 2021 results wherein it breezed past the Zacks Consensus Estimate on both earnings and revenues. UnitedHealth also lifted its full-year earnings outlook.

Earnings per share came in at $5.31, well above the Zacks Consensus Estimate of $4.42 and improved 42.7% from the year-ago earnings of $3.90. Revenues grew 9% year over year to $70.2 billion and edged past the estimated $69 billion. Continued strength in Optum and strength in UnitedHealthcare backed the robust performance (read: 6 Keys to a Healthy ETF Portfolio).

Medical ratio (a measure of the percentage of premiums paid out for medical services) remained stable at 80.9% as compared to 81% a year ago. The health insurer raised its 2021 adjusted earnings per share from $17.70-$18.25 to $18.10-$18.60 and maintained its revenue guidance in the range of $277 billion to $280 billion. The earnings outlook includes a $1.80 hit due to treatment and testing costs related to COVID-19. The Zacks Consensus Estimate for earnings per share is pegged at $18.17 for 2021 (see: all the Healthcare ETFs here).

Following the solid results, UNH shares soared to new highs and jumped 3.8% at the close in yesterday’s trading session. The stock currently has a Zacks Rank #3 (Hold) and Value Score of A. It belongs to an unfavorable Zacks industry (placed at the bottom 34% of 250+ industries).

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 - Free Report)

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 59 securities in its basket and UNH occupies the top position with 23.1% share. The fund has amassed $1.1 billion in its asset base, while volume is light at about 32,000 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.

iShares Evolved U.S. Healthcare Staples ETF (IEHS - Free Report)

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 $27.8 million in its asset base and sees a meager volume of 7,000 shares. It charges 18 bps in annual fees (read: Thematic Investing on the Rise: ARK ETFs Leading the Pack).

Health Care Select Sector SPDR Fund (XLV - Free Report)

The most-popular health care ETF, XLV follows the Health Care Select Sector Index. This fund manages nearly $25.3 billion in its asset base and trades in heavy volume of around 8.6 million shares. Expense ratio comes in at 0.12%. In total, the fund holds 63 securities in its basket with UNH taking the second spot at 8% of the assets. Health care equipment and supplies, and pharma take the largest share at 28.5% and 27.7% share, respectively, from a sector look, while health care providers and services, and biotech have double-digit exposure each. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: 4 Sector ETFs to Watch for Gains in Q2).

iShares U.S. Healthcare ETF (IYH - Free Report)

This fund offers exposure to 123 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 second firm accounting for 7.2% of the total assets. In terms of industrial exposure, pharma takes the top spot at 25.8%, followed by health care equipment (25.3%) and biotech (16.5%). The product has amassed $2.5 billion in its asset base, while charging 43 bps in annual fees. It trades in a moderate volume of around 40,000 shares a day and has a Zacks ETF Rank #2 with a Medium risk outlook.

Vanguard Health Care ETF (VHT - Free Report)

This ETF tracks the MSCI US Investable Market Health Care 25/50 Index and holds 451 stocks in its basket. Of these, UNH takes the second spot with 5.9% allocation. Pharma takes the largest share at 24.7%, 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 $13.9 billion and an average daily volume of about 219,000 shares. It charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

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