The health insurance industry is seeing an upheaval this year on increased regulation, pricing concerns and the sustainability of Obamacare, which is highly dependent on the outcome of the November election.

Against such a weak backdrop, the largest U.S. health insurer UnitedHealth Group (UNH) came up with robust third-quarter 2016 results and raised its outlook for the full year. This has sparked a rally in the industry, infusing an air of confidence in future growth and profitability.

Q3 Earnings in Focus

UnitedHealth Group continued its long streak of earnings beat with earnings per share of $2.17 surpassing the Zacks Consensus Estimate by nine cents and coming in 23% higher than the year-ago quarter. Revenues rose 12% year over year to $46.3 billion, edging past the Zacks Consensus Estimate of $45.9 billion. Growth was broad based with a staggering 34% increase in revenues for Optum, the health services segment.

UnitedHealth lifted its earnings per share guidance for 2016 to $8 from the previous projection of $7.80–$7.95. This is well above the Zacks Consensus Estimate of $7.91. During the conference call, Chief Executive Officer Stephen Hemsley signaled strong earnings growth in 2017 as well. According to Hemsley, the company could beat analysts’ expectations thanks to strong performance by Optum.

Following the upbeat results and solid outlook, the stock climbed the most in three years by as much as 7% on the day. This suggests that the health insurer is turning around after Obamacare-related losses weighed on its results earlier this year.

Further, UnitedHealth’s financial results, which act as a barometer for the rest of the industry, helped the stocks of the other players to close the day in green. Of these, Aetna (AET) climbed 2.7%, Humana (HUM) was up 2%, Anthem (ANTM) rose 4.1%, Cigna (CI) added 4.2%, Molina Healthcare (MOH) gained 3.1% and Centene (CNC) was up 2.8%.

Attractive Fundamentals

UnitedHealth has been clearly outpacing the broad sector and the market, gaining about 21.9% in the year-to-date time frame against the loss of 2.6% for the S&P 500 Health Care Index and gain of 4.7% for the S&P 500 index. It is the No. 1 stock in IBD's Medical-Managed Care group.

The stock has a Zacks Rank #2 (Buy) and boasts a solid Industry rank in the top 37%, underscoring its potential to outperform in the weeks ahead. Additionally, it has enticing flavors of Value Style Score of A and Growth Style Score of B.

Given attractive fundamentals and UNH’s potential to lift the entire health insurer sector, many investors may want to buy ETFs having the largest allocation to this giant health insurer. For them, iShares U.S. Healthcare Providers ETF (IHF - Free Report) could especially be on radar as UNH takes the top spot in the fund’s portfolio with 14.2% share.

IHF in Focus

This ETF provides exposure to 49 companies that provide health insurance, diagnostics and specialized treatment by tracking the Dow Jones U.S. Select Healthcare Providers Index. About 45.6% of the portfolio is dominated by managed care firms while healthcare services and healthcare facilities round off the top three. The fund has amassed $555.5 million in its asset base while volume is moderate at about 88,000 shares per day on average. It charges 44 bps in annual fees and expenses and added 2.9% following the UNH earnings release. The product is down about 1% so far in the year and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.

Other ETFs

Other healthcare ETFs like Health Care Select Sector SPDR Fund (XLV - Free Report) ,Vanguard Health Care ETF (VHT - Free Report) ,iShares U.S. Healthcare ETF (IYH - Free Report) ,John Hancock Multifactor Healthcare ETF (JHMH - Free Report) and Fidelity MSCI Health Care Index ETF (FHLC - Free Report) also have a decent exposure to UnitedHealth in the range of 4–5%.

Apart from the healthcare space, UNH is among the top 10 holdings in some large cap ETFs such as SPDR Dow Jones Industrial Average ETF (DIA - Free Report),WisdomTree LargeCap Value Fund (EZY - Free Report) , PowerShares Dynamic Large Cap Growth Portfolio (PWB - Free Report) and First Trust Mega Cap AlphaDEX Fund (FMK  - Free Report) with 5.1%, 3.8%, 3.6% and 3.5% share, respectively.