Exchange-traded fund investing as European open-end diversified core equity real-estate funds' cash substitute

Purpose The study is set to explore a viability for substituting part of cash holdings within European open-end diversified core equity (ODCE) real-estate funds with listed real-estate exchange-traded fund (ETF) alternative. Academically, this research bridges a knowledge gap within private real-estate market research. Design/methodology/approach First, the study investigates the correlation between ODCE and ETFs to assess series interdependence. Next, the study generates a blended ODCE and ETF portfolio and examines its performance by quantifying a) the contribution to returns and b) the diversification benefits. Findings The findings suggest that a 1 percent spare cash allocation to an ETF increases ODCE fund returns by few bps although the diversification benefits are more nuanced. Originality/value The study adds additional evidence on the contested issue of blending private and public real estate.