Why Mairs & Power Balanced Fund Stands by UnitedHealth Group Amid Healthcare Sector Headwinds

In the first half of 2025, the healthcare sector faced a perfect storm of challenges: regulatory scrutiny, pricing pressures, and management transitions at key players. Yet, the Mairs & Power Balanced Fund has chosen to double down on its position in UnitedHealth Group (UNH), a decision that appears counterintuitive at first glance. This strategy, however, reflects a disciplined, long-term investment philosophy rooted in macroeconomic megatrends and the transformative power of artificial intelligence (AI). By examining the fund's rationale and UNH's competitive advantages, it becomes clear that this holding is not a bet on short-term resilience but a strategic alignment with the future of healthcare.

Mairs & Power's Macro-Driven Philosophy

The Mairs & Power Balanced Fund has long emphasized positioning in companies that capitalize on structural shifts rather than cyclical trends. For 2025, its focus areas include AI, energy infrastructure, and U.S. onshoring efforts—sectors where durable competitive advantages and technological innovation converge Mairs and Power - Unlocking the Investment Opportunity of AI^[1]. While healthcare is not the fund's sole focus, its overweight position in the sector is justified by its role as an “infrastructure” industry for AI adoption. Health care generates vast amounts of data, which, when processed by AI, can optimize everything from drug discovery to patient outcomes. This aligns with the fund's broader thesis that AI will drive productivity gains across “Old Economy” sectors, including Industrials, Financials, and Health Care Mairs and Power - Unlocking the Investment Opportunity of AI^[1].

The fund's patience with UNH, despite its Q1–Q2 2025 underperformance, underscores its commitment to bottom-up analysis over market sentiment. As the fund's third-quarter 2024 investor letter noted, UnitedHealth Group's integration of AI into its operations—particularly through its Optum division—positions it as a leader in a sector poised for digital transformation Here's Why Mairs & Power Balanced Fund is Holding UnitedHealth UNH Despite Challenges^[2]. This long-term lens allows the fund to weather short-term volatility, such as UNH's earnings guidance cuts and regulatory challenges, while focusing on the company's structural strengths.

UnitedHealth Group's Competitive Advantages

UnitedHealth Group's dominance in the U.S. healthcare market is underpinned by three pillars: scale, integration, and technological innovation. As the largest health insurer in the country, it leverages economies of scale to negotiate favorable rates with providers and offer cost-effective plans to employers and individuals Here's Why Mairs & Power Balanced Fund is Holding UnitedHealth UNH Despite Challenges^[2]. Its dual business model—UnitedHealthcare (insurance) and Optum (health services and technology)—creates a flywheel effect. Optum's data analytics and AI capabilities not only enhance UnitedHealthcare's risk management but also generate revenue through external clients, including other insurers and hospitals Here's Why Mairs & Power Balanced Fund is Holding UnitedHealth UNH Despite Challenges^[2].

Optum's AI-driven tools are particularly noteworthy. The division's Optum Insight platform employs natural language processing and predictive analytics to streamline clinical decision-making, reduce administrative burdens, and lower costs Here's Why Mairs & Power Balanced Fund is Holding UnitedHealth UNH Despite Challenges^[2]. For example, AI-powered risk assessment tools are being deployed to predict patient health risks and allocate resources proactively. By 2025, UnitedHealth aims to extend these tools to 100% of its members and boost telehealth utilization to 40%, further embedding itself at the forefront of digital health Here's Why Mairs & Power Balanced Fund is Holding UnitedHealth UNH Despite Challenges^[2]. These initiatives create switching costs for clients and patients, reinforcing the company's moat.

Strategic Alignment and Long-Term Potential

The fund's decision to retain UNH is also a bet on the healthcare sector's inevitable evolution. While the sector has lagged behind AI-driven tech stocks in 2025, this divergence reflects its slower pace of transformation, not its irrelevance. UnitedHealth Group's strategic plan to integrate AI into every facet of its operations—from claims processing to personalized care—positions it to capture value as the sector modernizes Here's Why Mairs & Power Balanced Fund is Holding UnitedHealth UNH Despite Challenges^[2].

Moreover, the fund's valuation-conscious approach means it views UNH's current challenges as temporary. Regulatory pressures and management transitions are common in a highly regulated industry, but UnitedHealth's durable competitive advantages—its scale, integrated business model, and AI expertise—suggest it can navigate these headwinds. As one analyst noted, “The fund is betting that UnitedHealth's ability to innovate will outpace its peers, turning today's volatility into tomorrow's outperformance” Here's Why Mairs & Power Balanced Fund is Holding UnitedHealth UNH Despite Challenges^[2].

Conclusion

The Mairs & Power Balanced Fund's stance on UnitedHealth Group is a masterclass in long-term strategic thinking. By aligning with a company that is not only adapting to AI but actively shaping its future, the fund is positioning itself to benefit from the healthcare sector's inevitable digital transformation. While the first half of 2025 was rocky, the fund's patience is grounded in a clear-eyed assessment of UNH's structural strengths and its role in a broader macroeconomic narrative. For investors seeking to understand the intersection of healthcare and technology, this case study offers a compelling blueprint.