(FORTUNE Magazine) – For the past few years, the booming U.S. stock market has made investing overseas seem like a waste of time. And for most international fund managers, beating the roaring S&P 500 average has been little more than a pipe dream.

Don't bother telling that to Joe Joseph, Nigel Hart, and Joshua Byrne, co-managers of Putnam's International Voyager fund. Over the past three years the fund has returned an average of 29%, edging out the S&P, not to mention all but one other international fund, according to Lipper. And so far in 1999, the Putnam trio is poised to clean the S&P's clock: As of Nov. 17, International Voyager was up 57%, compared with the S&P's 15% gain.

It's tempting to attribute 1999's gains to the broad rebound in international equities and leave it at that. After all, the rise of long moribund ADRs like Mexico's Telmex (up 105% this year) has titillated investors in the past few months. But global trends alone have never fully explained the superlative performance of the $660 million International Voyager fund. Case in point: During the global currency crisis in 1997 and 1998, when many international fund managers faced negative returns, Putnam's team notched solid gains of 16.4% and 27.1%, respectively.

The fund concentrates on small to midsized companies with market caps ranging from $300 million to $4 billion. As a result, nearly all of the fund's holdings are traded on their respective local bourses (though there are a handful of ADRs in the fund; see box). Almost 70% of the fund's portfolio is spread among European equities, with another 18% devoted to Japanese stocks. The balance is in developed Asian countries, along with 3% in emerging markets.

Keep in mind that International Voyager comes in different classes, which vary in terms of fees and expenses. The best bet for investors: Class A, which has an expense ratio of 1.78%, and a front-end load of 5.75%. If the fund is part of your 401(k) plan, you may be able to get A shares without the front-end load.

The secret to the trio's approach is simple: They are dyed-in-the-wool stock pickers who size up each of the fund's 125 holdings by visiting the company, interviewing management, and dissecting its financials. (Joseph, a former auditor for Price Waterhouse, is also a tough judge when it comes to scrutinizing the books.) Voyager's team also avoids making decisions based on broad trends in a particular sector or country--a "flyover" approach favored by many international managers. That allows Byrne, Hart, and Joseph to turn up individual opportunities that their colleagues often miss.

The Voyager trio find that most of the action they like is in Europe. Stoked by monetary union and rising equity markets, Western Europe has become the fund's hottest hunting ground--most of its top ten holdings are located there. Hart, a U.K. native educated in economics, is looking for little-known telecom companies in out-of-the-way places. One is Bouygues, a $16 billion French conglomerate known primarily for its construction business. Conglomerates have been a no man's land in European investing for some time. But by early 1998, Hart noticed that Bouygues had quietly built a formidable cellular telephone business. "Only this year are investors seeing the real value of the cellular asset," says Hart. And how: Bouygues' shares on the Paris bourse are up 132% this year.

Advertising is another sector Hart likes. As in the U.S., tech firms have embarked on an unprecedented brand-building boom, swelling billings at top ad agencies. The fund has taken stakes in Aegis Group, a British firm that is the largest independent media-buying agency in Europe, and Havas, a French agency that specializes in dot-coms. So far this year, Aegis is up 101%, while Havas has gained 115%.

In Japan, International Voyager has avoided export-driven manufacturers in favor of retailers, consumer finance houses, and other service firms that benefit from the country's burgeoning consumer economy. In June, Melissa Chadwick, one of four analysts who help the Voyager team find promising ideas, visited Sundrug, a $500 million drugstore chain with 110 outlets in metropolitan Tokyo. She was impressed by management's efforts to streamline distribution and open new stores in the Tokyo suburbs, where less competition promised fatter profits. Chadwick returned to the fund's home base in Boston and urged her colleagues to buy. Smart move: Since June the shares have climbed 38% on the Tokyo Stock Exchange. It's finds like Sundrug that have pushed International Voyager to the top of the charts--and are likely to keep it there for years to come.

--Edward Robinson