The finance industry is one sector that has a couple of good tailwinds behind it. The amount of money in the overall Australian and global monetary systems continues to grow, which helps. However, the best tailwind for most finance shares is the growth of the total superannuation pool.
Here are my favourite three finance shares:
Challenger Ltd (ASX: CGF)
Challenger is Australia's leading annuity provider with a dominant market share. The company turns people's capital into a guaranteed source of income.
The superannuation pool is getting each bigger each year with the mandatory 9.5% contribution for employees, but Challenger is benefiting in-particular from the rising number of retirees. The number of people older than 65 is expected to be 75% higher in 20 years.
Challenger is currently trading at 18x FY18's estimated earnings.
Magellan Financial Group Ltd (ASX: MFG)
Magellan is a fund manager with a focus on global shares. The investment team have outperformed the global index very effectively, which is why it has attracted so much funds under management (FUM). The latest FUM update showed that Magellan now has $65.36 billion at the end of February 2018.
I believe that the fund manager will be able to continue attracting funds at a strong rate due to Aussie investors looking to increase their exposure to overseas investments.
Magellan is trading at 23x FY17's earnings.
Macquarie Group Ltd (ASX: MQG)
Macquarie is Australia's fifth largest bank, but it is very different to the other big four banks. Commonwealth Bank of Australia (ASX: CBA) and its peers rely on Australian mortgages for most of their earnings, whereas Macquarie earns a majority of its money overseas.
Not only that, Macquarie has shifted to less-cyclical operations like asset management. Macquarie sees a big future for infrastructure and renewable energy expenditure, so it is working hard in those areas. I think this is a clever move, which is why it's my favourite bank.
Macquarie is currently trading at 15x FY18's estimated earnings.
Foolish takeaway
I think all three businesses are likely to beat the market over the coming years. I believe that Challenger will be the best performer as the amount of money flowing into retirement will be a very strong tailwind for the annuity king.
