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Shares in UK-listed house builders offer real value at present despite the negativity that has surrounded those stocks as investors anticipate interest rates rising, according to Job Curtis, manager of the 1.2 billion City of London investment trust (LON:CTY).

He revealed that he has added to existing holdings in Persimmon and Berkeley Group. and added a new holding in Taylor Wimpey.

The shares have suffered due to the perception that an interest rate rise will be bad for business. But the fact is that the country needs far more houses to be built each year than are actually being completed. This allows companies to grow or to protect margins and pay dividends, which are a very important part of our trust. Some of the house builders have actually been paying special dividends. It is also the case that any interest rate rise is likely to be very gradual.

In contrast, Curtis has reduced his holding in Balfour Beatty. This is a firm that is involved in big construction projects, just as the house builders are, but the difference is that it tends to do commercial construction and a lot of government contracts, which are much lower-margin jobs than house building.

He continued, Balfour Beatty has issued a series of profit warnings this year, and I think that things still look quite tough for the company.

Another business to which he has added recently is HSBC Bank. This is a bank that really is in quite good condition. People were negative towards banks because of the regulatory environment. I think perhaps people get quite bored looking at HSBC, but that is not a bad thing for a bank. Its a business that yields 4.7 per cent, and the management want to grow it further. HSBC has a huge amount of surplus cash. which benefits from rising interest rates, so the capacity is there to grow much more.

Curtis also holds Barclays, which he describes as cheap, but has a much smaller holding in this than in HSBC. He commented, If I were only able to hold one, it would certainly be HSBC.

He is also keen on Shell. As an income investor, I like very much the fact that this is a company that has not cut its dividend since World War II. Big oil company shares suffered quite a bit last year, but have done better so far in 2014.

The manager noted that Shell used to offer to pay its dividend in shares or cash, but now only offers the cash option, which he views as a positive. The management have learnt their lesson, and are selling assets and cutting costs. The stock is the largest holding in the trust, and I have added to it.

The City of London Investment Trust has increased its dividend in each of the past 44 years, and has the lowest charges of any fund in its sector.

Curtis has huge exposures to the very largest UK companies, and many believe that an increase in UK interest rates will be bad for those stocks. This is because a rise in interest rates will cause the yield on UK government debt to rise, and might entice income-hungry investors away from the largest companies paying dividends and towards bonds.

He accepts that this argument stands up to scrutiny in normal times, but much less so now. Interest rates are so low that it would have to be a very dramatic increase for it to affect the largest companies. Interest rates in the UK are currently 0.5 per cent, UK gilts [government debt] are trading at 2.5 per cent and the average yield of a UK large-cap is 3.5 per cent, so it would take quite a dramatic shift in the bond yield for them to become the more attractive asset class.