How OCIOs Help RIAs With Tactical Asset Allocation for Value & Growth Stock Portfolios

How OCIOs Help RIAs With Tactical Asset Allocation for Value & Growth Stock Portfolios

By way of introduction, value stocks are often characterized by lower-than-average PE ratios and higher dividend yields. They may be characterized as more stable based on their industry, financial circumstances, and stable management. More stable companies typically issue stocks with predictable cash flows and mature business models. As the name implies, these stocks are perceived as undervalued and are expected to produce higher returns when the market sorts out any pricing anomalies.

On the other hand, as you may know, growth stocks are usually associated with faster-growing public companies that rarely pay any significant dividends. The earnings of growth companies are reinvested to promote even faster growth.  

Cornerstone Insights: Financial advisors and their clients must consider the trade-offs between the potential for faster growth rates, the possibility of more stable rates of return, or a blend of the two.

In this article, we’ll explore how OCIOs use tactical asset allocation to manage value and growth stock portfolios:

  • Why consider active, tactical asset allocation for your clients?
  • How can tactical asset allocation be used for value and growth stocks?
  • What are the opportunities for improved, risk-adjusted rates of return?
  • Why should financial advisors outsource their more sophisticated portfolio management requirements to an OCIO?


Read our latest Quick Guide: “A Stronger Investment Team is Vital During Market Volatility”


Why consider active, tactical asset allocation for your clients?

Active, tactical asset allocation (TAA) can provide a flexible, timely approach to investing in the securities markets that can help your clients navigate market volatility with the potential for higher investment returns.  

Unlike passive asset allocation decisions, TAA allows you to make strategic shifts in the composition of a portfolio based on economic trends, market conditions,and opportunistic investment opportunities in different asset classes. This can create the potential for higher returns and reduced risks. 

Additionally, TAA can provide an extra layer of risk management, enabling timely asset allocation adjustments based on your client’s risk tolerance, timeline, and financial goals.  Adopting an active, tactical asset allocation strategy can optimize portfolio performance and enhance client risk-adjusted returns.  

Cornerstone Insights: Why use an OCIO? Because TAA requires in-depth knowledge and expertise, many RIAs are partnering with OCIO firms to assist in using this proven strategy for their clients.  This not only positions your firm as being more proactive in managing your client accounts, but it also can be a significant time saver for your firm when your OCIO team executes the strategy for you, providing more time for you to add new clients and serve current clients. 

How can TAA be used for value and growth stocks?

When it comes to value and growth stocks, TAA can be used in several ways:

Identifying the economic cycle: Generally, growth stocks tend to outperform during periods of economic expansion due to their potential for high earnings growth, while value stocks tend to outperform during economic slowdowns or contractions as they are often considered more stable. Tactical asset allocation can shift the balance between value and growth stocks based on the stage of the economic cycle.

growth stocks

Sector Rotation: This involves moving assets from one sector to another based on economic indicators. Growth sectors (like technology or consumer discretionary) may be targeted during an expansion, while value sectors (like utilities or consumer staples) may be favored during slowdowns.

Momentum Investing: This is based on the idea that stocks that have performed well in the past will continue to perform well shortly. Depending on whether value or growth stocks show stronger momentum, an OCIO could decide to increase the portfolio’s exposure to that style.

Valuation-based allocation: Tactical asset allocation could also involve adjusting allocations to value and growth stocks based on their relative valuations. For example, suppose growth stocks are overvalued compared to their historical norms. In that case, an OCIO might reduce exposure to growth stocks and increase exposure to value stocks or vice versa.

Risk Management: Given that growth stocks are often more volatile than value stocks, an OCIO could shift more assets into value stocks during periods of increased market volatility.

Market signals: OCIOs may also use technical analysis or other market signals to guide their allocations. For example, certain price patterns or trends in the market suggest that growth stocks are likely to outperform or that it’s a good time to shift into value stocks.

Cornerstone Insights:  We don’t believe in significantly changing your investment strategy.  Instead, we’ll augment and improve upon your existing processes. We’ll manage your clients’ current assets in a way that supports uninterrupted growth for your firm. Our team will handle daily trading activities, prepare for meetings, and generate reports, providing you the time and space to explore new avenues of growth for your firm. 

What are the opportunities for improved, risk-adjusted rates of return?

TAA also offers the potential for superior risk management in down markets. By actively monitoring market conditions and adjusting asset allocations, financial advisors can potentially reduce their clients’ exposure to overvalued or underperforming assets, which can reduce losses during market downturns. 

It is important to note that tactical asset management differs from market timing. While timing involves predicting short-term market movements, tactical asset management is more long-term, systematic, and disciplined. It relies on rigorous analysis and research to make informed decisions, considering various factors that can impact the investment performance of particular securities groups.

Cornerstone Insights: It’s important to note that while TAA can enhance returns, it does not guarantee superior results. Successful implementation of TAA strategies requires deep market knowledge, astute analysis, and effective decision-making. In addition, TAA strategies may generate higher transaction costs due to the more frequent trading of securities in client accounts. This is where the services of an OCIO can make even more sense for your RIA

Why should financial advisors outsource their more sophisticated portfolio management requirements to an OCIO?

As an RIA, you can leverage the services of an OCIO and tap into CFA investment professionals specialized knowledge and expertise. OCIO provides comprehensive investment research and solutions, offering fiduciary oversight for your clients.  

Partnering with an OCIO can also free you and your team from the operational and administrative tasks associated with portfolio management.  Consider the amount of time that could be spent by you and/or your team on research, analysis, and staying up to date with market trends, regulatory changes, and investment strategies. 

This enables RIAs to focus more of their most valuable resource (time) on winning new clients and serving current clients.

About Cornerstone Portfolio Research:

Based in Chester Springs, Pennsylvania, Cornerstone Portfolio Research is an independent firm that provides portfolio management and investment research services to independent RIAs. Our clients are nationwide.

Our core service provides the knowledge and services of a Chief Investment Officer (CIO) and CFA® Charterholder without all the costs of a full-time employee. We can also assist with back-office operations, enabling you to focus on the activities that produce the best ROI for your firm. 

Read our value proposition:

  • Engaging a CIO doesn’t require an equity stake in the company
  • Our CIO services do not require a six-figure salary with the associated bonuses, benefits, and taxes and benefits
  • We do not force you to raise your client fees to pay for our services
  • Your fee stays competitive (5 to 20 bps; the majority of accounts are 5 to 10 bps
  • Our neutrality on custodians means you can retain your current custodial relationship
  • Your existing investment strategy will not require significant changes
  • We deliver research and investment models tailored to your unique approach;not a one-size-fits-all solution
  • You do not need to move assets, establish new accounts, or re-paper your clients
  • We gradually implement changes, ensuring a smooth transition for your clients
  • Our tax-efficient approach is consistently applied when proposing changes
  • Weekly high-level communications are maintained for transparency
  • We participate in virtual sales and service meetings as required
  • All services are white-labeled under your RIA’s name
  • You can list us on your website’s ‘Our Team’ page
  • We offer a solution to any applicable succession planning concerns
  • A full-service CIO is always available during regular business hours
  • We can address any unique needs your firm may have
  • You will partner with a CFA Charterholder, a highly regarded designation in the financial service industry

We invite you to connect with us to learn more about our OCIO and research services. 

An OCIO Can Help Your RIA


More about the author: Thomas Balis

Thomas holds a Bachelor of Science in Business from Ohio State and has since earned the Chartered Financial Analyst® (CFA®) designation as well as the Accredited Portfolio Management Advisor (APMA®) and Chartered Mutual Fund Counselor (CMFC®) certifications.