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Healthcare ETFs in Focus Post UnitedHealth's Q1 Earnings

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The largest U.S. health insurer UnitedHealth Group (UNH - Free Report) reported mixed first-quarter 2020 results wherein it breezed past the Zacks Consensus Estimate on earnings but lagged the same for revenues.

Earnings per share came in at $3.72, well above the Zacks Consensus Estimate of $3.62 but were a penny below the year-ago earnings of $3.73. Revenues rose 6.8% year over year to $64.42 billion but fell shy of the estimated $64.67 billion. Results were boosted by growing pharmacy benefit business (read: What's in Store for Dow ETFs in Q1 Earnings?).

The company affirmed its full-year adjusted earnings per share guidance of $16.25-$16.55, indicating "minimal impact" of the COVID-19 pandemic. However, the medical ratio (a measure of the percentage of premiums paid out for medical services) could accelerate in the second half of the year. The company also said that its employer-sponsored health insurance business could be under pressure due to rising unemployment levels in the country, while its Medicaid and individual business lines could benefit.

Following its earnings release, UNH shares climbed 4.1% at the close of day. The stock currently has a Zacks Rank #3 (Hold) and VGM Score of A. It belongs to a favorable Zacks industry (placed at the top 17% 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 - 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 47 securities in its basket and UNH occupies the top position with 22.2% share. The fund has amassed $862.1 million in its asset base, while volume is good at about 87,000 shares per day, on average. It charges 43 bps in annual fees and has a Zacks ETF Rank #3 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 161 stocks in its basket with UnitedHealth taking the top spot at 11.6%. The fund has accumulated $11.7 million in its asset base and sees a meager volume of 6,000 shares. It charges 18 bps in annual fees.

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 $22.4 billion in its asset base and trades in heavy volume of around 11.5 million shares. Expense ratio comes in at 0.13%. In total, the fund holds 60 securities in its basket, with UNH taking the second spot at 10.6% of the assets. Pharma accounts for 33.3% 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 (Buy) with a Medium risk outlook (read: Healthcare Stocks & ETFs to Gain on Coronavirus Test Progress).

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

This fund offers exposure to 119 securities by tracking the Dow Jones U.S. Health Care Index. Here again, UnitedHealth is the second firm accounting for 6.5% of the total assets. In terms of industrial exposure, pharma takes the top spot at 31.5%, followed by health care equipment (23.2%) and biotech (17.5%). The product has amassed $2.2 billion in its asset base, while charging 43 bps in annual fees. It trades in moderate volume of around 74,000 shares a day and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Any Bright Spot in Q1 Earnings? Sector ETFs & Stocks to Buy).

Vanguard Health Care ETF (VHT - Free Report)

This ETF tracks the MSCI US Investable Market Health Care 25/50 Index and holds 389 stocks in its basket. Of these, UNH takes the second spot with 5.9% allocation. Pharma takes the largest share at 29.2%, 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 $9.6 billion and average daily volume of about 308,000 shares. It charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

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