“If investors continue to pull money out of the fund companies caught up in the mutual-fund scandal, dozens of stocks could get knocked down in the process,” writes Ken Brown in today’s Wall Street Journal.

“Assets under management at Putnam Investments fell by a staggering $14 billion last week, with $4 billion coming out of the firm’s mutual funds. To help make up for the investor withdrawals, Putnam said it sold stocks in its mutual-fund portfolios totaling $5 billion to $7 billion, or 3% to 4% of its assets.”

“It is that selling, particularly if the pace increases, that could affect the prices of stocks in Putnam’s portfolio — and even hurt the market in general.”

” ‘It could be a big problem for the market because there’s not a lot of buying going on otherwise,’ says Phil Roth, chief technical market analyst at Miller Tabak + Co., a brokerage firm.”

“So far, Putnam, which is owned by insurance broker Marsh & McLennan Cos., is the only company implicated in the scandal that has released investor data for November. Other firms that are the focus of the investigation, including Janus Capital Group Inc., Strong Capital Management and AXA SA’s Alliance Capital, have released numbers only for October. (Late Tuesday, Janus said its assets under management barely changed in October, at about $150 billion, in a month when the Dow Jones Industrial Average rose 5.7%.) All of the firms have said they are cooperating with the investigation, which focuses on rapid trading of mutual-fund shares, which can provide profits at the expense of other fund shareholders.”

“But if the Putnam redemptions are any sign of the withdrawals facing other firms, some stocks could be hit by selling as the funds try to raise cash, or as savvy investors bail out early before the mutual funds themselves start to sell.”

“Some stocks are particularly vulnerable. According to FactSet Research Systems, which tracks institutional stock holdings, the four firms collectively own a hefty 24.6% of the shares outstanding of auto parts maker Lear Corp.; almost 21% of Action Performance Cos., which sells motor-sports merchandise; 20.8% of cable operator Comcast Corp.; and 19.7% of Juniper Networks Inc., a computer-networking company.”

“Some of these stocks already have been hit, though it’s impossible to pin the blame on the fund companies. Lear is down nearly 10% from its high last month, shares of Action Performance, a relatively illiquid small-cap stock, are down by a third after the company reported weaker-than-expected earnings and Comcast shares are down 6% this month. Shares of Whirlpool, a big holding of Putnam and Alliance, are down 4% in the same period.”

“Other stocks in which the fund companies own large stakes include: Smurfit-Stone Container Corp., 18.5%; MBNA Corp., 17.7%; Lamar Advertising, 17.4%; Symantec Corp., 16.4%; Health Management Associates, 16.1%; and Westwood One Inc., 15.9%, according to FactSet.”