Eaton Vance’s Healthcare Rebalance: Why UnitedHealth Group’s Stake Took a Hit

The healthcare sector has long been a pillar of institutional portfolios, but recent shifts in investment strategies are upending traditional holdings. Eaton Vance, one of the largest managers of healthcare-focused funds, dramatically reduced its stake in UnitedHealth Group (UNH) during Q1 2025, cutting holdings by 39.43% amid rising operational challenges and strategic reallocations. This move underscores broader concerns about the insurer’s ability to navigate Medicare Advantage cost pressures and regulatory headwinds while signaling a pivot toward emerging health technologies.

The Reduction in Context

Eaton Vance’s decision to slash its UnitedHealth holdings—selling 56,594 shares worth $29.7 million—came after the insurer reported a stark 13.89% year-to-date decline in its stock price. The drop followed UnitedHealth’s Q1 earnings miss, which revealed $6.3 billion in profits, down from $24.65–$25.15 per share guidance. CEO Andrew Witty attributed the shortfall to a “frankly unusual” spike in Medicare Advantage care utilization, driven by higher demand for outpatient and physician services.

The fund’s rationale, as detailed in its 13F filings, pointed to three critical factors:

1. Medicare Advantage Cost Overruns: Rising care activity in Medicare Advantage plans—driven by both patient behavior and CMS policy changes—eroded margins. UnitedHealth now faces a $6.3 billion profit hit in 2025, with adjusted earnings guidance slashed to $26–$26.50 per share, a 12% drop from prior estimates.
2. Optum’s Operational Struggles: UnitedHealth’s care delivery arm, Optum Health, saw patient profitability decline as newly enrolled members skewed toward higher-cost demographics. CEO Witty admitted the company was “not executing on the model transition as well as we should,” raising concerns about scalability.
3. Regulatory and Competitive Risks: Biden administration cuts to Medicare Advantage reimbursement rates and evolving CMS risk-adjustment models have introduced uncertainty. Analysts note these pressures could extend beyond UnitedHealth, impacting sector peers like Elevance Health (ELV).

A Strategic Rebalance: Where the Money Moved

Eaton Vance’s reduction of UnitedHealth wasn’t merely defensive—it was part of a deliberate pivot toward health technology innovators. The fund:
- Added Humana (HUM): A 47,874-share stake (1.33% of its portfolio) reflects confidence in Humana’s managed-care model and its ability to adapt to Medicare reforms.
- Boosted Abbott Labs (ABT): A 17.5% increase in shares highlights Eaton Vance’s bet on diagnostics and medical devices as defensive plays in a volatile healthcare market.
- Exited Neogen (NEOG): The complete sale of its 420,833-share position signals skepticism about smaller firms lacking scale in a cost-conscious environment.

The Broader Market Implications

Eaton Vance’s actions mirror a growing institutional skepticism toward traditional insurers. The fund’s 3.43% portfolio impact from UNH’s reduction highlights how even minor shifts in mega-cap holdings can ripple through markets. For context, UnitedHealth’s Q1 underperformance dragged down the Healthcare Select Sector SPDR Fund (XLV), which fell 5.2% in the quarter—underperforming the S&P 500’s -1.8% decline.

Meanwhile, Eaton Vance’s focus on telemedicine, personalized medicine, and digital health platforms aligns with a $24 billion sector growth projection by 2030, per McKinsey. Funds like the Eaton Vance Global Managed Volatility Fund, which cut holdings by 46.86% in some healthcare names, are prioritizing companies like Teladoc Health (TDOC) and Guardant Health (GH) over legacy insurers.

Conclusion: A New Era for Healthcare Investors

Eaton Vance’s reduction of UnitedHealth Group is no isolated event—it’s a bellwether for the healthcare sector’s evolution. With Medicare Advantage costs rising, regulatory risks mounting, and innovation tilting toward tech-driven solutions, traditional insurers face existential challenges.

The data tells the story:
- UnitedHealth’s stock dropped 22% in a single day after its Q1 report, erasing $22 billion in market cap.
- Eaton Vance’s 39% stake reduction in UNH contrasts with its 33.67% increase in Edwards Lifesciences (EW), a medical device firm, reflecting a clear strategic preference for tangible innovation.
- The Healthcare sector’s 5-year underperformance versus the S&P 500 (6.3% vs. 11.2% annualized returns) suggests broader skepticism toward its growth trajectory.

Investors should heed this shift. While UnitedHealth’s long-term fundamentals remain robust—its 13–16% earnings growth target post-2026 hinges on rate hikes—near-term volatility and competition from tech-driven rivals make it a risky bet for all but the most patient portfolios. The future belongs to firms that can merge scale with innovation, not just manage risk.

In this new era, Eaton Vance’s rebalance isn’t just a tactical move—it’s a roadmap for where healthcare capital is flowing.