UnitedHealth Group Inc

UnitedHealth was a significant detractor from our portfolio performance in 2025, described as a 'kick in the teeth' early in the year. Despite a stellar performance in 2024, we found ourselves too patient with this position as earnings growth was interrupted. Consequently, we decided to sell our holdings in UnitedHealth, reflecting our lack of confidence in its future performance amidst broader market challenges.

UnitedHealth Group Incorporated stands as the premier, category-defining enterprise in the United States healthcare sector. The company has built an unparalleled competitive moat by uniquely combining a dominant health benefits platform, UnitedHealthcare, with a rapidly growing and diversified health services business, Optum. This integrated model creates a powerful, self-reinforcing ecosystem that is fundamentally reshaping the delivery and management of healthcare, establishing UnitedHealth as a truly elite and durable compounding enterprise. Management has demonstrated a clear and disciplined strategy focused on expanding this integrated model, continuously investing in its technological capabilities and strategically acquiring assets that enhance the Optum platform.

We repurchased shares of UnitedHealth Group Incorporated, a leading managed health care company. After a series of setbacks, the company now has new management in place and has reset earnings guidance for 2025. Although many challenges remain, including persistently high medical cost trends, rate pressure, and the threat of Pharmacy Benefit Manager reform, the company continues to have competitive advantages including scale, data, vertical integration with service providers, and leadership in Medicare Advantage and value-based care. We see an attractive business trading at close to a 10-year low relative valuation with potential for valuation expansion as earnings recover from depressed levels.

We had the opportunity to increase our position in one such company this quarter. UnitedHealth Group (UNH) is a behemoth in the U.S. healthcare industry, providing insurance for more than 50 million Americans and touching over 100 million more through the healthcare providers and facilities they own. The company continues to generate an enormous amount of cash flow despite the recent setback. In the end, we see significant ongoing demand for healthcare and UNH is well positioned to get its share of the pie.

UnitedHealth Group has been a prominent detractor from relative performance in 2025. However, the company rebounded nicely in the third quarter and our long-term belief in the company remains. The Fund's investment philosophy seeks out companies with durable competitive advantages, above-average growth prospects, and exceptional management teams that are trading at attractive valuations. We believe UnitedHealth Group exemplifies these qualities, and we are optimistic about its potential for future growth.

In the second quarter, I added UnitedHealth to the portfolio. This decision reflects my belief in the company's potential for growth and its ability to capitalize on emerging trends in the health care sector. I see UnitedHealth as a strong player in the market, and I am optimistic about its future performance as it continues to innovate and expand its services.

After a significant decline, UnitedHealth's stock rebounded, adding 0.9% to the fund. The new CEO's optimistic comments and Berkshire Hathaway's initiation of a position in the company have encouraged investors. This positive sentiment suggests a recovery and potential growth for UnitedHealth, making it an attractive investment opportunity.

UnitedHealth Group experienced a significant setback in mid-April, surprising investors and analysts alike. The company withdrew its full-year financial guidance, announced a change in CEO, and reported earnings that fell short of expectations—a stark contrast to its history of consistent performance. The Medicare Advantage business was a primary driver of these weak results, facing cuts from the Centers for Medicare & Medicaid Services (CMS) and exceeding anticipated physician and outpatient care expenses. Given UnitedHealth’s unique position as both an insurer and a healthcare provider, this situation created a profitability squeeze across both segments of its business, impacting its profit outlook for the remainder of the year.

UnitedHealth Group Inc. was the portfolio’s weakest performer in Q2, with Q1 results showing 5% revenue growth but declining earnings due to rising medical cost ratios. The company faced pressure from higher utilization in outpatient procedures, particularly among Medicare Advantage and Medicaid patients, leading to margin compression. Concerns about elevated utilization trends and regulatory uncertainty around Medicare Advantage rate-setting have negatively impacted investor sentiment, prompting sell-side analysts to revise estimates downward. Despite this short-term volatility, the manager acknowledges UnitedHealth's strong integrated model and expects earnings power to remain intact over a multi-year horizon.

UnitedHealth Group (UNH) represents exactly the kind of opportunity we like. It fell from a high of $630 late last year to a low of $249 in the second quarter giving us the chance to enter. A long-time darling known for consistently beating earnings, investors reacted poorly to a barrage of bad news (earnings disappointment, guidance pull, CEO change, DoJ investigation). We see earnings power of $40-45 per share in 3-5 years. The company historically traded at 16-17x earnings. Using the low ends of these ranges implies UNH will trade back to $640, upside of 111%. If that takes 5 years, it will compound at 16% per year, which should nicely outperform the market.