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Given the economic crisis in Europe and the malaise in Japan, foreign funds with a focus on developed markets really ought to be in the tank. And yet developed markets funds are holding up quite well. How are they doing it?

This year through June, the average fund in Morningstar's foreign large-cap blend category was up 4.2%, slightly outpacing the S&P 500's 3.8% gain. Funds with bigger stakes in European stocks are doing even better. In fact, Europe-only funds posted an average gain of 6.3%, the best of any regional category tracked by Morningstar. "Even with the volatility that's happened in Europe, funds focusing on Europe and developed Asia have held up better [than funds focused on other regions]," says Todd Rosenbluth, an S&P analyst.

However uncertain the situation, foreign fund managers are finding pockets of value. For example, some funds have avoided Europe's financial stocks, which have swooned lately because of concerns about their exposure to shaky sovereign debt, and loaded up on the continent's big industrials, which gather much of their revenue from countries outside the eurozone, says Karin Anderson, a mutual fund analyst at Morningstar. In addition, American investors in European stocks have been benefitting from the dollar's 7% slide against the euro so far this year. Meanwhile, other funds cut back their exposure to Japanese stocks earlier this year; those that held on, or added shares of Japanese companies just after the quake, have seen stocks rebound, although not to pre-crisis levels.

Of course, the economic problems rocking Europe and Japan remain very real. While Japanese markets should get a boost from post-quake rebuilding, S&P's analysts are still fairly neutral on the market overall, says Alec Young, an international analyst for Standard & Poor's. Meanwhile, worries over European banks, which are heavily exposed to the troubled debts of governments in Greece, Spain, and Italy, are intensifying. And in Europe, bank performance has an outsized effect on markets, since they account for roughly 23%of the widely used MSCI EAFE index for developed foreign stocks, compared to banks' 15% weighting in the S&P 500, Young says. "We still are big believers in investing in Europe, but you need to be more surgical in your approach," Young says. "Now is a great time for active management."

But for investors still interested in foreign funds that target developed markets, here are three offerings that have performed well during the difficult first half of this year, and that analysts believe will continue to shine over the long haul.

Templeton Foreign Fund (TEMFX):

The $6.5 billion Templeton Foreign fund has the flexibility to make large sector or country bets, including emerging markets, but right now is almost entirely invested in developed markets stocks, with two-thirds of the portfolio allocated to Europe, according to Morningstar. It's up about 4.2% so far this year, compared to a 1.9% increase for the average fund in Standard & Poor's international large-cap core fund category, and beat its peer group in 2009 and 2010. Much of that outperformance is due to lead manager Tucker Scott's investment in less-risky companies with rock-solid balance sheets, says Rosenbluth. "They're also investing in companies that have higher dividend yields, and that probably has helped in this market," because firms with higher dividends tend to be less volatile, he says. But the fund is more volatile than it used to be, say Morningstar analysts. Whereas the fund used to wait it out in cash if there was a shortage of bargain stocks, since Scott took over the reins in 2007 it's been fully invested in stocks. The fund charges a reasonable 1.19% in expenses, compared to an average 1.34% for its peers, according to Morningstar.

T. Rowe Price European Stock Fund (PRESX):

Less exposure to financial stocks and more to industrials have helped the $899 million T. Rowe Price European Stock fund beat its index so far this year, gaining 5.87%. "The hot button topic this year is how much exposure do funds have to the banks, and this one's a bit underweight to financials overall," Anderson says. The fund has about 16.5% of assets in financial stocks, compared to the European stock fund category average of 19.2%, and a 27.6% weight to industrials, compared to the category average of 13.4%. The fund can buy companies of any size, but has tended to own more mid-cap names, Anderson says. It's done well in bear and bull markets, landing in the top quartile of its Morningstar category for 2008 and the top third for 2009. However, Anderson cautions that a strictly European-focused fund may not be necessary for many investors, given that broader international funds tend to have a lot of European exposure, she says. "Adding something like this, you might be doubling up," she says.

Oppenheimer International Growth Fund (OIGAX):

Up 5.1% so far this year, the $5.4 billion Oppenheimer International Growth fund has the largest exposure to Europe of any fund in Morningstar's foreign large-cap growth category, with 80% of its assets invested in the region, Anderson says. That European portion of the portfolio, however, is focused on the U.K., Germany, France and Switzerland, which have been relatively unaffected by the crisis there. The fund has much less exposure to euro-zone countries facing debt problems, including Greece (less than 1% weighting) and Italy and Spain (less than 4% each), according to Morningstar data. Portfolio manager George Evans focuses on broad investing themes, including the growing strength of the emerging-markets consumer, Anderson says. However, rather than buying emerging-markets stocks, he's focused on European-based companies that sell luxury goods to those consumers, such as Burberry or LVMH, she says. One catch: The fund tends to avoids energy and materials stocks and so will often underperform rival funds when commodities are on a tear.