UnitedHealth Group Inc

UnitedHealth Group was a top relative contributor to the Fund's performance, demonstrating resilience despite previous business headwinds. The company has announced significant AI investments aimed at enhancing customer engagement and productivity gains. This strategic focus on AI is expected to drive further business acceleration, as evidenced by their revenue growth exceeding 30% year-over-year in the first quarter. The management change, bringing back former CEO Stephen Hemsley, has also been positively received, with an improvement plan in place that targets cost management and margin expansion.

We significantly added to UnitedHealth, approximately doubling the size of the position. Year-to-date, we’ve seen three positive developments: the federal government increased Medicare Advantage reimbursement rates by +2.5%, the CMS adopted more conciliatory language recognizing the need for stability, and UnitedHealth’s Medical Cost Ratio beat expectations by 1.6%. These factors suggest a faster recovery towards target margins, making UnitedHealth a compelling investment as the government is aware of the industry's loss-making situation and is taking steps to stabilize it.

A year ago, we wrote to you about the travails of our UnitedHealth investment. The stock lost over half its value in about a month, an extraordinary change for a steady business that serves as the health insurance provider to one in seven Americans. The company has since executed on its turnaround plan, raising rates to reflect the higher usage and getting out of markets it couldn’t make money in. We bought more after the stock tanked, and it has since rebounded, returning 37% over the past year and 80% off its lows. We think there’s more to come.

UnitedHealth Group Incorporated has executed a successful turnaround plan after facing significant challenges, including unexpectedly higher healthcare usage and unprofitable business ventures. The company has raised rates to reflect the increased usage and exited unprofitable markets. Following a substantial drop in stock value, we increased our position, and the stock has rebounded impressively, returning 37% over the past year and 80% off its lows. We believe there is further upside potential as the company continues to stabilize and grow.

UnitedHealth's share price rose on increased market optimism around stabilizing medical cost trends and improved Medicare Advantage margins. This rebound reflects a positive sentiment in the health care sector, particularly as companies like UnitedHealth are seen as benefiting from these trends. The overall market is optimistic about the future performance of health care companies, and UnitedHealth is positioned well within this context.

UnitedHealth Group outperformed on strong premium growth and improved cost management under CEO Stephen Hemsley, signaling that industry headwinds have bottomed. Sentiment was further lifted by a higher-than-expected Medicare Advantage reimbursement for 2027. This positive performance reflects the company's ability to navigate challenges effectively and capitalize on growth opportunities in the health care sector.

UnitedHealth Group Incorporated provides health insurance as UnitedHealthcare and health services (including pharmacy benefits management) as Optum. Shares rallied during the quarter on strong earnings and improved margins—after a protracted decline—due to declining medical costs, stronger pricing and increased utilization with higher premiums.

We bought UnitedHealth, because its shares look attractively valued and we expect its profits to recover. This positions us well in the healthcare sector, where we see potential for growth as the market stabilizes and demand for health services remains strong.

Our position in UnitedHealth was based on our view that the company would deliver durable growth due to its ability to manage the rising healthcare costs given its scale advantages. We viewed the business as having strong pricing power given its vertical integration with Optum, which gave them good tools to manage medical costs, as well as the ability to raise premiums annually. However, execution missteps and government payment cuts to Medicare Advantage programs led to disappointing results. Despite expectations for re-pricing health insurance policies, the preliminary rate for 2027 was just 0.1%, disappointing both us and the market. Given these developments, we decided to exit the position and re-allocate the capital into higher conviction growth opportunities.

UnitedHealth Group (UNH) has faced a series of missteps over the past year, and the recent announcement from the Center for Medicare & Medicaid Services of a flat increase for 2027 has added further pressure. Management indicated a need to cut benefits to offset this reimbursement shock, which is anticipated to result in volume loss and lower profitability. This situation has negatively impacted the Fund's performance, highlighting concerns about the company's ability to navigate these challenges effectively.