It's not easy to figure out which tech stocks might be most vulnerable if money started gushing out of growth and tech funds, but let's give it a whirl since so many of you have emailed me asking this question.

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We've talked about how some already battered tech stocks could be blindsided by more selling if fund investors start

yanking their money out of sputtering, tech-stuffed growth funds. This would force managers to sell stocks to cash out rattled fund investors, a situation that helped drag down value funds and their top picks in 1998 and 1999. We also told you money

started leaving growth funds in significant amounts last month for the first time since 1998. A redemption wave may be coming or it may never arrive; either way you're better off knowing which tech stocks, particularly those in the less liquid small-cap arena, might be most vulnerable.

The upshot: A high degree of fund ownership is usually a shot in the arm for a company and its shares, but if money gushes from growth funds it could mean the opposite for some firms.

Before we name names, let's put the situation in perspective. If you're not familiar with this redemption argument, here's a summary. Over the past three years, growth funds and tech sector funds rang up record returns and inflows thanks to fat tech bets. The average big-cap growth fund, which is the largest stock fund category, had almost 40% of its money in tech stocks at the start of February, according to


. That's almost twice the mercurial sector's market weighting, using the

S&P 500

as a yardstick.


Source: Morningstar.

With the tech-laden

Nasdaq Composite

off more than 60% from its all-time high set last March, these tech-stuffed funds are reeling. Before today's quixotic trading, the average big-, mid- and small-cap growth funds were all down more than 30% over the past 12 months. And tech funds, which got about a third of all net flows to stock funds last year, were down more than 60% on average, according to Morningstar.

These are Growth Funds, Right?
It wouldn't be surprising if investors looked at their March 31 account statements and decided to reduce their exposure to tech-stuffed growth funds

Source: Morningstar. Returns through March 13.

In the fund world, where sales gradually follow returns, the combination of a period of steep inflows followed by sagging performance is typically a recipe for a spate of redemptions. As we told you earlier this month, redemptions from stock funds outnumbered investments to the tune of a $13.9 billion outflow in February, according to liquidity tracker

. Flows so far in March have been flat, according to estimates from, but for the two business days ending March 12, stock funds were in outflows to the tune of $6.5 billion.

Even if you think those outflows are just a tempest in a teacup, they do represent a sharp about-face. In February 2000, for example, stock funds took in some $54 billion, according to And this past February was the first month of outflows since August 1998, when the near-collapse of the giant hedge fund

Long Term Capital Management

spooked investors.

As money has flowed out of growth funds at Janus and other growth shops, money has flowed into bond funds and less aggressive stock funds, a trend started in January as investors digested bleak year-end account statements.

There are good reasons to think these outflows from sagging growth funds will continue, among them the specter of more losses ahead, dreary March 31 account statements, investors' growing realization that they're overexposed to the tech sector and the need to raise cash to pay tax bills made steeper by funds' record cap-gains distributions last year. And then there's the ability to move money without a tax headache in tax-deferred retirement accounts, where some 65% of fund assets reside, according to the

Investment Company Institute

, the fund industry's biggest trade group.

Of course, there are also reasons to think growth fund investors will stay put. For one, the grass isn't looking much greener among other stock funds. Aside from small-cap value funds, most stock funds in the black this year are those focused on energy stocks, gold and Latin American stocks. Then there's the bunker mentality that sets in when a fund is way down.

OK, there's the scenario. Now let's get to the stocks that could be in the line of fire. To come up with these names, I screened large-, mid- and small-cap tech stocks for those with at least 33% of their shares owned by stock funds. For comparison, funds own about 10% of the average tech company, according to Morningstar.

These lists turn up some intriguing names and all are worth a look, but the most vulnerable stocks are probably those in the small-cap arena. There's less liquidity there, or less trading each day, so when a big owner tries to dump shares and few buyers show up, the stock's price can tumble.

"I'd be more concerned in the small-cap space than with the large-caps," says Morningstar senior fund analyst Scott Cooley. "The last time we had a rough time for small-cap growth stocks was in 1998. A lot of managers were forced to sell illiquid issues into an unforgiving market where bid/ask spreads widened."

Cooley rightly notes that given big-cap stocks' higher trading volume, fund redemptions would be less of a burden on them than small-caps. Once again, it's not as if this is reason to panic, but because we've raised the redemption issue, I thought I'd at least try to give you an idea of which stocks might be vulnerable.

Well, here are some candidates:

Fund Junkie runs every Monday and Wednesday, as well as occasional dispatches. Ian McDonald writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to, but he cannot give specific financial advice.