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Zoltán Nagy

Zoltán Nagy

Executive Director, MSCI Research

Zoltán Nagy is a member of the Equity Core Research team. In this role, he focuses on questions related to the integration of factors and ESG considerations into the equity portfolio management process. Zoltan joined MSCI in 2008, and first worked on the development of new index methodologies and on other index-related research. Prior to entering finance, Zoltan was a post-doctoral researcher at the University of Algarve, Faro, Portugal, where his area of research was Quantum Integrable Systems. Zoltan holds a PhD degree in Theoretical Physics from the University of Cergy-Pontoise, France, and an engineering degree from the Ecole Polytechnique, France. He is also a CFA® charterholder.

Research and Insights

Articles by Zoltán Nagy

    Are Emissions Rising or Falling in Equity Indexes?

    7 mins read Blog | Jun 22, 2022 | Monika Szikszai , Zoltán Nagy

    Investors can use different metrics to track their portfolios’ carbon footprint. Regardless, they will increasingly need tools to better identify the sources of changes in whichever climate metrics they use. We present an attribution methodology.

    Could Europe’s Shift from Russian Gas Accelerate Climate-Transition Risk?

    5 mins read Blog | Mar 30, 2022 | Chris Cote , Zoltán Nagy , Guido Giese

    Europe’s search for energy sources outside of Russia may slow the low-carbon transition in the short term. Staying within a net-zero cumulative emissions budget would mean fewer emissions later. What might this path mean for investors’ portfolios?

    Why Your Portfolio May Be Hot, Cold or Just Right

    6 mins read Blog | Jan 19, 2022 | Zoltán Nagy , Helen Droz

    Investors may want to understand not only if their portfolios are aligned with global climate goals but why they may (or may not) fall short of the mark. A performance-attribution analysis can help them understand how “hot” or “cold” their portfolios are.

    Climate Matters: What’s in an ESG Rating. And What’s Not.

    6 mins read Blog | Nov 23, 2021 | Meggin Thwing Eastman , Guido Giese , Zoltán Nagy

    ESG ratings are widely used in active management and ESG indexes, with a growing focus on climate change. This has increased debate around two questions: Why are ESG ratings so different across providers? And how do ESG ratings reflect climate risk?

    Constructing Net-Zero Portfolios: Three Approaches

    4 mins read Blog | Sep 30, 2021 | Guido Giese , Zoltán Nagy , Chris Cote

    While investors around the world are committing to bring the carbon footprints of their portfolios to net-zero by 2050, figuring out how to do so is not a simple matter. What alternatives do investors have?

    Net-Zero Alignment: Objectives and Strategic Approaches for Investors

    Report | Sep 20, 2021 | Zoltán Nagy , Guido Giese

    Investors have a key role in keeping global warming well below 2°C. We examine four strategic levers that investors can use to accelerate companies’ decarbonization: a shift of capital, active stewardship, financing of low-carbon solutions and policy advocacy. 

    Foundations of Climate Investing: How Equity Markets Have Priced Climate-Transition Risks

    Report | Mar 1, 2021 | Bruno Rauis , Zoltán Nagy , Guido Giese

    To what extent has climate risk been priced into equity markets? How can we model such risks as the world moves toward net-zero targets? We show how climate has increased in importance in the last two years, with potential long-term implications for understanding equity markets.

    How Have Stocks Responded to Changes in Climate Policy?

    7 mins read Blog | Mar 1, 2021 | Guido Giese , Zoltán Nagy , Bruno Rauis

    To what extent has climate risk been priced into equity markets? Is there a “brown” discount and a “green” premium? Has this shifted over time? How can we model such risks as the world moves toward net-zero targets? We examine the financial impact of climate transition risk on global equity markets.

    The Drivers of ESG Returns

    Report | Feb 26, 2021 | Navneet Kumar , Roman Kouzmenko , Guido Giese , Zoltán Nagy

    As the COVID-19 crisis affected financial markets, all standard MSCI ACWI ESG equity indexes outperformed their market-capitalization benchmarks. Where has this outperformance come from? Have inflows into ESG investments driven up equity valuations, possibly creating a price bubble?

    Better Together: Policy Benchmarks, Active Equity and ESG

    Report | Jan 25, 2021 | Anil Rao , Zoltán Nagy , Guido Giese , Raman Subramanian

    As we’ve previously demonstrated, incorporating firm-level ESG characteristics into portfolio construction can preserve, and even improve, risk and return relative to the broad market. Here we follow-up by asking how an allocator can integrate ESG considerations efficiently across multiple portfolios in its equity program.

    Is ESG Investing a Price Bubble? Probably Not.

    6 mins read Blog | Dec 9, 2020 | Guido Giese , Navneet Kumar , Zoltán Nagy

    Inflows into ESG funds have soared in recent years and months, in part motivated by outperformance since the COVID-19 pandemic erupted. But have these inflows become a self-fulfilling prophecy, creating an ESG bubble?

    Combining E, S, and G Scores: An Exploration of Alternative Weighting Schemes

    Report | Sep 2, 2020 | Zoltán Nagy , Linda-Eling Lee , Guido Giese

    How an overall ESG rating is constructed can significantly impact its usefulness. We tested two approaches: equal weighting and backward optimization. Equally weighting E, S, and G pillar scores across sectors showed less financial significance than the stand-alone G pillar score — that is, without E and S scores — over the 13-year study period. Backward optimization showed greater significance than stand-alone G scores but may underestimate the importance of ESG indicators to financial...

    Managing Climate Risk in Investment Portfolios

    Report | Jun 26, 2020 | Zoltán Nagy , Bruno Rauis

    Investors are increasingly concerned about how climate change and a transition to a low-carbon economy could impact the risk and return profile of their portfolios. In this case study, we selected a sample portfolio representative of a global actively managed fund in terms of its risk-return characteristics and used the MSCI Climate Value-at-Risk model to examine the different dimensions of climate-related risks. We show how Climate VaR can be used to measure climate risks for the portfolio...

    ESG Ratings: How the Weighting Scheme Affected Performance

    Blog | Jun 25, 2020 | Zoltán Nagy , Linda-Eling Lee , Guido Giese

    Our recent research suggests that environmental and social issues were more industry specific and tended to show up in financial measures over a longer time frame compared to governance issues. How can E, S and G issues be combined?

    Which ESG Issues Mattered Most? Defining Event and Erosion Risks

    10 mins read Blog | Jun 19, 2020 | Guido Giese , Zoltán Nagy , Linda-Eling Lee

    Very different ESG issues can be material for different industries. Our research suggests that risks can be divided into two main types: “event” risks and “erosion” risks to companies’ long-term competitiveness. Which ones mattered most for E, S and G?

    Deconstructing ESG Ratings Performance: Risk and Return for E, S And G by Time Horizon, Sector and Weighting

    Report | Jun 12, 2020 | Zoltán Nagy , Linda-Eling Lee , Guido Giese

    How are environmental, social and governance (ESG) ratings constructed? Which indicators are the most important in assessing ESG characteristics? Does the answer vary by sector? This foundational paper examines the impact on financial performance of two types of ESG indicators: the individual E, S and G pillars scores and the underlying ESG Key Issue scores.  

    Is ESG All About the ‘G’? That Depends on Your Time Horizon.

    10 mins read Blog | Jun 12, 2020 | Linda-Eling Lee , Guido Giese , Zoltán Nagy

    The conventional wisdom has it that governance is the most dominant of the three E, S and G pillars. But our analysis finds different results when looking at contribution to performance over different time horizons.

    Five Lessons for Investors From the COVID-19 Crisis

    Report | May 19, 2020 | Dimitris Melas , Navneet Kumar , Zoltán Nagy , Roman Kouzmenko

    The coronavirus pandemic sparked a surge of volatility across global financial markets. What lessons could investors draw from the COVID-19 crisis? In this paper, we present and discuss empirical evidence supporting five key lessons for investors regarding global investing, managing factors, active management, indexed investing and ESG investing.

    MSCI ESG Indexes during the coronavirus crisis

    8 mins read Blog | Apr 21, 2020 | Zoltán Nagy , Guido Giese

    The COVID-19 outbreak is the first real-world test since the 2008 global financial crisis of the resilience of companies with high MSCI ESG Ratings. We analyze the performance of four standard MSCI ESG Indexes over Q1 2020 and longer periods.

    ESG Investing in Emerging Markets

    Report | Feb 11, 2020 | Zoltán Nagy , Ric Marshall , Panos Seretis

    Recent studies by MSCI ESG Research LLC have shown historical positive links between environmental, social and governance considerations and corporate financial performance. Because investors might still question whether ESG historically added value in emerging markets, where companies’ consideration of ESG risks is a more recent phenomenon, we compared the performance of four ESG indexes to their MSCI emerging-market parent. Overall, we found that despite emerging-market companies’ tending...

    How Markets Price ESG: Have Changes in ESG Scores Affected Stock Prices?

    Report | Nov 12, 2018 | Zoltán Nagy , Guido Giese

    Many researchers have studied the link between companies’ Environmental, Social and Governance (ESG) characteristics and financial risk and performance. This paper examines some of the underlying economic questions: How have markets priced ESG characteristics? Have they been fully priced? Have there been sweetspots? How quickly did the market incorporate ESG information? We investigate these questions by looking into how changes in companies’ ESG profiles have historically predicted equity...

    Integrating Factors in Market Indexes and Active Portfolios

    Report | Nov 8, 2018 | Dimitris Melas , Navneet Kumar , Zoltán Nagy , Peter Zangari

    Asset owners use indexes as policy benchmarks and reference portfolios in their asset allocation. Index investors track cap-weighted indexes that seek to capture the market return. Active investors select securities and build portfolios that aim to outperform the market. All these types of investors may be able to benefit from incorporating factors into their process. More importantly, they may also be able to integrate factors without compromising other fundamentally important aspects of...

    Quitting tobacco stocks without going through withdrawal

    Blog | Oct 15, 2018 | Zoltán Nagy

    Despite strong headwinds, including renewed divestment pressure,1 the tobacco industry has proved quite resilient financially and outperformed the stock market over the past 18-1/2 years. So much so, that some institutional investors are now thinking of lifting tobacco bans in their investment policies. We found that most of the gains associated with holding tobacco stocks over this period were not specific to the tobacco industry, and could have been obtained in other ways. We also show it...

    Foundations of ESG Investing – Part 4: Integrating ESG into Factor Strategies and Active Portfolios

    Report | Jun 7, 2018 | Dimitris Melas , Laura Nishikawa , Linda-Eling Lee , Guido Giese , Zoltán Nagy

    How can ESG characteristics be integrated consistently across factor-based and active equity allocations? In Part 4 of the Foundations of ESG Investing paper, we discuss two approaches to applying ESG ratings to factor-based allocations – a one-step and a two-step approach – asking which has done a better job at combining the underlying strategy with ESG while maintaining exposure to target factors. We then investigate overlaying ESG ratings and ESG momentum on the historical holdings of...

    Foundations of ESG Investing – Part 3: Integrating ESG into Indexed Institutional Portfolios

    Report | May 16, 2018 | Dimitris Melas , Laura Nishikawa , Linda-Eling Lee , Guido Giese , Zoltán Nagy

    According to recent surveys, asset owners’ have shifted their main focus to ESG’s financial benefits, as opposed to social benefits. In the third part of this paper, we discuss how ESG can be integrated into indexed allocations using MSCI ESG Ratings, which provided better risk-adjusted returns from August 2010 to December 2017 than the MSCI ACWI Index. We used existing best-in-class selection-based index methodologies (the MSCI ESG Leaders Index) for the creation of hypothetical global and...

    Foundations of ESG Investing – Part 1: How ESG Affects Equity Valuation, Risk and Performance

    Report | Nov 29, 2017 | Dimitris Melas , Laura Nishikawa , Linda-Eling Lee , Guido Giese , Zoltán Nagy

    Many studies have focused on the relationship between companies with strong ESG characteristics and corporate financial performance.  However, these have often struggled to show that positive correlations — when produced — can in fact explain the behavior. This paper provides a  link between ESG information and the valuation and performance of companies, both through their systematic risk profile (lower costs of capital and higher valuations) and their idiosyncratic risk profile...

    Have Corporate Controversies Helped or Hurt Performance

    Report | Oct 17, 2017 | Zoltán Nagy , Linda-Eling Lee , Meggin Eastman

    A Study of Three Portfolio Strategies The broad effects of excluding entire business lines, typical of the more traditional values-aligned of a socially responsible portfolio, are generally understood. However, little research has been done on the performance implications of exclusions based on alleged corporate wrongdoing, though such exclusions are common. In this study, we investigate the risk and return impact of excluding companies involved in events negatively impacting stakeholders,...

    Investing for the Long Run: ESG and Performance Drivers

    Blog | Aug 30, 2017 | Zoltán Nagy

    We see a growing number of institutional investors seeking to avoid financial risks associated with environmental, social and governance (ESG) factors, or even to enhance returns by investing in companies that have strong ESG track records. As we wrote in an earlier blog post, these investors are typically looking to limit the number of companies excluded from their portfolios, both to avoid sacrificing diversification and to be active owners able to engage with corporate management.

    Factor Investing and ESG Integration

    Report | Nov 30, 2016 | Dimitris Melas , Zoltán Nagy , Padmakar Kulkarni

    Integrating ESG criteria into equity portfolios raises important portfolio construction questions. For example, what is the impact of ESG on portfolio performance and characteristics? How does it alter the risk profile and the factor exposures of portfolios? How does it affect institutional investors’ ability to pursue their investment strategy?  Our results show that integrating ESG criteria into passive strategies generally improved risk-adjusted performance over the period 2007 to...

    Can ESG Add Alpha?

    Report | Jun 17, 2015 | Zoltán Nagy , Altaf Kassam

    Do institutional investors sacrifice risk-adjusted returns by incorporating ESG considerations? In this paper, we analyze two relatively high tracking error global strategies constructed using ESG data — a Tilt strategy and a Momentum strategy — and find that both model portfolios outperformed the MSCI World Index over the last eight years, while also improving the ESG profile of the portfolios. These backtested model portfolios show an example of how institutional investors with the...

    Research Insight - Evaluating the Accuracy of Beta Forecasts - September 2014

    Report | Sep 8, 2014 | Ashu Singh , Jose Menchero , Zoltán Nagy

    In this Research Insight, we present a framework for evaluating the relative accuracy of beta forecasts. We consider naive betas, historical betas, and predicted betas. Our technique relies on observing the residual returns of a large universe of stocks over various time periods. We find that the expected residual volatility decreases as the beta estimates become more accurate. We also demonstrate residual volatilities can be translated into beta estimation errors. We find that across the...

    Global Market Report - Relative Strength of Industries and Countries in Emerging Markets - September 2014

    Report | Sep 8, 2014 | Zoltán Nagy , Jose Menchero

    In this Global Market Report, we examine the latest developments in emerging markets through the lens of the Barra Emerging Markets Equity Model (EMM1), a risk model tailored for this specific investment universe. We examine whether there has been a change recently in the strength of industries and countries. We are also able to gauge how the inclusion of style factors modified the overall picture.

    Research Insight - Attribution Benefits of Aligning a Risk Model to Investment Universe - May 2014

    Report | Jul 15, 2014 | Zoltán Nagy , Jyh-huei Lee , Jose Menchero

    In this Research Insight, we use the Barra Emerging Markets Model (EMM1) and the Barra Global Equity Model (GEM3) to attribute the returns of a representative set of emerging market portfolios.  We show that by aligning the estimation universe with the investment universe, the EMM1 model provides a more accurate and meaningful description of emerging market portfolios.

    Europe Market Report - The Mid-Cap Effect - December 2013

    Report | Jul 15, 2014 | Michael Sun , Zoltán Nagy

    Since the outbreak of the global financial crisis in 2008, global mid-cap stocks have been unique, providing a better risk-adjusted return than a combination of large and small-cap stocks.  Recent global trends, such as low interest rates, decreasing risk aversion and the availability of cash for acquisitions, may have favored the outperformance of mid-cap stocks.  In this Europe Market Report, we look at this trend through the lens of the Barra Europe Equity Model (EUE4) and...

    Europe Market Report - The Relative Importance of Industries and Countries in Developed Europe - May 2013

    Report | Jul 15, 2014 | Zoltán Nagy , Jose Menchero

    In this Europe Market Report, we investigate the relative importance of industries and countries in Developed Europe, using a case study with the EUE4 Model. In particular, we explore whether the recent sovereign-debt crisis had altered the relative importance of these two sets of variables.  We find that since the late 1990s, industries have dominated countries in Developed Europe. As the sovereign-debt crisis unfolded in 2011, the gap between the two narrowed, although countries never...

    Managing Investments with Fundamental and Stochastic Factor Models

    Report | Jul 15, 2014 | Frank Vallario , Jyh-huei Lee , Zoltán Nagy

    For years, practitioners have debated the benefits of using fundamental versus statistical models. In this Research Insight, we argue that the two approaches to risk modeling are complementary, not mutually exclusive. To support our reasoning, we provide a case study that demonstrates how the Barra North America Stochastic Factor Model (NAMS1) and the Barra US Equity Model (USE4) can work in concert to uncover hidden sources of risk.

    Model Insight - Using Statistical Models to Capture Missing Fundamental Factor Risk - April 2013

    Report | Jul 15, 2014 | Zoltán Nagy , Jose Menchero

    In this Model Insight, we investigate whether statistical models can capture sources of risk that are missing from a fundamental factor model. We also study whether statistical models are more effective at detecting missing factors during periods of market turmoil.  We conclude that the statistical model effectively identified sources of risk that were missing from a fundamental model. Furthermore, we show that the strength of these missing factors peaked during times of market...

    Global Market Report - Forty Years of Better Betas - March 2013

    Report | Jul 15, 2014 | Oleg Ruban , Zoltán Nagy

    In this report, we look at the period between January 1997 and December 2012, comparing two methods of estimating the market risk of a portfolio: historical beta and predicted beta, based on the Barra Global Equity Model (GEM3). We investigate this question: which estimation approach performed best during periods of market stress? We find that during our sample period, predicted beta appears to be a more accurate than historical beta as a gauge of the defensiveness or aggressiveness of a...

    Risk and Return of Factor Portfolios

    Report | Jul 15, 2014 | Zoltán Nagy , Jose Menchero

    Pure factor portfolios have unit exposure to the particular factor, and zero exposure to all other factors. Such portfolios, however, are not uniquely specified because they depend on the regression weighting scheme used for their construction. In this Research Insight, we investigate the risk and return characteristics of pure factor portfolios under several different regression weighting schemes.

    Global Market Report - The Mid-Cap Effect - December 2012

    Report | Jul 15, 2014 | Oleg Ruban , Jose Menchero , Zoltán Nagy

    In this paper, we show how Barra models capture the risk and return characteristics of mid-cap stocks using the Non-Linear Size factor. This factor describes the return difference between mid-cap stocks and the overall market, net other factors. We show that since the global financial crisis of 2008, the impressive performance of global mid-caps was attributed, in large part, to their exposure to Non-Linear Size. Monitoring the exposure to this factor provides investors with a view of...

    US Market Report - Volatility Regimes - August 2012

    Report | Jul 15, 2014 | Audrey Costabile , Zoltán Nagy

    This report analyzes USE4 factor returns during different volatility regimes during the last 17 years, with a focus on regimes with rapidly increasing volatility. Although these regimes were often associated with a decline in equity prices, some style and industry factors offered a hedge during these periods. Among styles: Momentum, Dividend Yield and Earnings Yield performed well in this environment. Among industry factors: Health Care, Utilities, and Consumer...

    Europe Market Report - Identifying Safe Havens in Europe - July 2012

    Report | Jul 15, 2014 | Oleg Ruban , Zoltán Nagy

    The crisis in the European sovereign bond and equity markets that started in late 2009 is still not resolved. As European economies and the local equity markets form a strongly connected network, the whole region – including core countries – is exposed to potential negative developments in Greece, Portugal, Spain, Ireland, and Italy. In this report, we show how the Barra Europe Equity model (EUE3) can be used to help identify stocks that are less sensitive to the unfavorable...

    GDP Weighting in Asset Allocation

    Report | Jul 15, 2014 | Zoltán Nagy

    In this bulletin, we examine the effects of an alternative global index weighting scheme that weights countries in a regional index by their GDP. This strategy has led  to a superior performance of the MSCI All Country World, MSCI World, and MSCI Emerging Markets GDP Weighted Indices in the past 40 years, when compared to their market capitalization weighted counterparts. We also list possible reasons that could explain this historical outperformance.

    What Drives Long-Term Equity Returns

    Report | Jul 15, 2014 | Zoltán Nagy

    We analyze components of long run returns of international equity markets using historical data spanning the 1975-2009 period. The analysis shows that after inflation, dividend income was the most important part of equity returns for the majority of markets. Growth in real book value had a low, but steady contribution to performance. Changes in valuation tended to smooth out in the long run, but had important implications to equity investing in the short run. We also show how expectations of...

    US Market Report - Do High Performing REITs Offer Diversification? - June 2012

    Report | Jul 15, 2014 | Audrey Costabile , Zoltán Nagy

    Some portfolio managers think of REITs as a source of good returns, having low correlation with the broad equity market. This market report examines these claims by looking at sources of outperformance as well as sources of return, risk and correlation over the past five years. Using the Barra US Equity model (USE4), we show that recent REIT performance was mainly due to an industry effect; over the long run, exposures to style factors heavily influenced the return and risk of a REIT...

    Asia Pacific Market Report - Asia Pacific Equities in a Correlated World

    Report | Jul 15, 2014 | Zoltán Nagy , Zhijian Lou , Neil Gilfedder

    The 2008 financial crisis put global markets into a volatile “risk-on / risk-off” swing.  When investors worry about recession or deflation, their risk aversion goes up and they shift to low-risk assets, thus hurting risky assets like equities. In contrast, when investors expect a recovery or inflation, their risk aversion goes down and they shift into high-risk assets.  This binary attitude results in a high degree of correlation among global markets and may point to a...

    US Market Report - Should I "Like" Facebook's IPO?

    Report | Jul 15, 2014 | Audrey Costabile , Zoltán Nagy

    The Facebook IPO raises questions about both the stock’s valuation and its risk characteristics. In this report, we explore how including or exluding  Facebook might affect the risk of style, or size segment portfolios of US equities. We also explain how the USE4 Model estimates factor exposures and specific risk of stocks before and after their IPO. For Facebook, we provide an estimation of those risk numbers, which can be used to create proxy assets in Barra Aegis or Barra...

    Europe Market Report - The Recent Value Conundrum - April 2012

    Report | Jul 15, 2014 | Oleg Ruban , Zoltán Nagy

    According to popular index-based measures, value stocks have tended to underperform growth stocks since 2010.  Alternative measures  of the value effect have shown different return profiles. In this report, we compare these different measures while touching on the practical issues of value investing, illustrating how unintended biases in a portfolio designed to capture the value effect could strongly influence its performance. 

    US Market Report - The Effect of the Bush Dividend Tax Cut - April 2012

    Report | Jul 15, 2014 | Audrey Costabile , Zoltán Nagy , Philippe Durand

    US investors are bracing themselves for the potential expiration of the 2003 Bush dividend tax cut.  To help portfolio managers prepare for this potential change in the US tax code, this Market Report uses the rich factor structure of the Barra US Equity Model to examine these issues: (1) what effect the initial tax cut had on dividend-paying stocks, (2) the impact of this policy on the overall stock market, and (3) the change in dividend policies of the issuing firms. 

    Does Style Make the Sector

    Report | Jul 15, 2014 | Oleg Ruban , Zoltán Nagy

    Sector rotation strategies are a staple of finance textbooks. This paper discusses sector rotation strategies and contributes beyond the typical literature by highlighting the need to look at the style profile within each sector. Most of the earlier studies on sector rotation focus on the links between industry membership and the macroeconomic or market cycles. We find that style exposures play an important role in sector performance, and returns driven by style effects can dominate returns...

    The Role of Real Estate in Objectives Driven Asset Allocation

    Report | Jul 15, 2014 | Raghu Suryanarayanan , Frank Nielsen , Zoltán Nagy

    In this paper, we examine the role of real estate in a multi-asset class institutional portfolio that adopts an objectives-driven asset allocation framework. We show that real estate may serve a variety of functions in an institutional investor's portfolio and should not be treated as a homogeneous asset class. Instead, the appropriate type of investment should be aligned with the total plan goals, with a focus on evaluating different real estate investments for their ability to add value to...