The Australian share index is dominated by the big four banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ). Around 25% of the ASX200 is made up by these four banking behemoths.
One of the key factors for good investing is diversification. If you own shares of all four banks, an Australian index or large-cap focused LIC you have a lot of exposure to the banks.
However, that doesn't mean you shouldn't have exposure to other finance stocks. Here are three great finance-related businesses:
Magellan Financial Group Ltd (ASX: MFG)
Magellan is a fund manager that focuses on overseas shares for investors. The growth of Australian wealth and the superannuation system has seen Magellan's total funds under management skyrocket over the last few years.
The Magellan funds offer investors good diversification and performance, which is why I'm confident it will keep attracting more funds.
Magellan is currently trading at 24x FY16's earnings with a grossed-up dividend yield of 3.96%.
Challenger Ltd (ASX: CGF)
Challenger is Australia's leading annuity provider, giving retirees a secure source of income from their capital.
Australians generally have more of their assets invested in shares and property compared to American and European investors. A shift towards fixed income and the growth of retirees could see Challenger grow substantially over the next decade.
It's currently trading at 18x FY18's estimated earnings with a grossed-up dividend yield of 3.71%.
Janus Henderson Group (ASX: JHG)
Janus Henderson is a new large fund manager born from a merger of UK-based Henderson and USA-based Janus. The combined entity could realise a lot of cost savings and provide more services to clients.
Although it's hard to say what the long-term future holds, Janus Henderson could be a good way to diversify your holdings away from Australian-focused finance businesses.
Foolish takeaway
Janus Henderson is too new to say if it's a good choice or not. However, I think Magellan and particularly Challenger could be great long-term winners.
