On his CNBC Mad Money Show last night, Jim Cramer spoke passionately against the use of ETFs. While CFRA believes investors have a variety of strong investment opportunities to consider, we contend that lower-cost ETFs can be helpful to reduce risks and provide liquid exposure to a variety trends. Our approach focuses on the holdings and leverages our stock research capabilities. Below we recap Cramer's take, and offer our perspective.

Cramer cited the "hideous" number of ETFs that have been launched in recent years, and noted that ETFs can be used to short stocks that you, the individual investor, may have in your portfolio.

CFRA notes it has data on 432 equity ETFs that launched since March 1, 2014 compared to 2,047 mutual fund share classes.

Financial advisors, ETF providers, and CFRA regularly tout the diversification benefits available via ETFs and mutual funds. They also note that ETFs can be a good way to get tactical sector exposure without relying on just one stock. Cramer questioned ETFs' diversification benefits, noting that even an ETF could own a stock like Enron, which subsequently went bankrupt due to corrupt accounting. He advised his listeners to buy a stock because it is the best in a sector that is growing, and avoid ETFs that would also include other "mediocre" names that could potentially drag down the returns.

CFRA has a different take. While the diversification benefits of ETFs will not prevent an investor from getting caught up in fraudulent accounting, it will limit the damage when a stock falls out of favor. For example, Sears Holdings (SHLD 8 NR) declined sharply today after acknowledging bankruptcy risk. Investors who owned Sears through an ETF like SPDR S&P Retail ETF (XRT 41 Marketweight) were protected by the ETF's stakes in Amazon.com (AMZN 847 ****), Netflix (141 ****), Wal-Mart (WMT 70 *****) and other retailers with stronger fundamentals.

With ETFs, investors have choices. Some ETFs, like XRT and others offered by ETF provider SSGA, are equally-weighted, meaning they own all stocks in the benchmark index in equal amounts. Others are market-weighted. For example, Health Care Select Sector SPDR (XLV 75 Overweight) has a 12% weighting in Johnson & Johnson (JNJ 127 ****) and a 7% weighting in Pfizer (PFE 34 ***). Vanguard Information Technology (VGT 135 Overweight) has a 14% weighting in Apple (AAPL 141 *****) and a 10% weighting in Alphabet. CFRA encourages all investors to determine what's inside any specific ETF before committing money; our ETF reports help investors do just that.

Cramer attributed the rise in the number of ETFs to the financial services industry looking for a new way to make money; CFRA attributes the rise in assets in ETFs to investors tiring of underperforming active managers. We think ETF products continue to roll out as investors pull money out of actively managed equity funds and into passive products. In the one-year period ended February, US equity and sector equity passive products gathered $285 billion and $58 billion, respectively. Meanwhile, active peer offerings shed $264 billion and $30 billion according to Morningstar. While low fees play a role in these decisions, CFRA thinks that continued struggles by active managers to keep up with the index has resulted in more investors being comfortable with consistently average returns.

Cramer touched on specialty ETFs, citing "wind power" as one investment trend that can be tracked through an ETF.

CFRA thinks Cramer was referring to First Trust Global Wind Energy ETF (FAN 12 Marketweight), which has 42 holdings including Vestas Wind Systems. FAN has approximately $80 million in assets and trades 40,000 shares on a daily basis. We would agree that this is a niche product, but don't believe such limited trading activity is likely to affect the overall market much.

Cramer also discussed that despite identifying a strong company, listeners have seen stocks decline after being weighed down by other stocks inside an ETF. One such example he highlighted was with stocks inside PureFunds ISE Cyber Security ETF (HACK 29 Underweight)

CFRA notes that HACK has gathered just $150 million of new money, but the performance of top-10 holdings has not gone in the same direction. For example, Palo Alto Networks (PANW 111 ***) is down a double-digit percentage thus far in 2017, while fellow HACK holding Symantec (SYMC 31 ***) is up more than 20%.

CFRA notes that active stock-pickers (professionals or individuals) often fail to keep up with market benchmarks. Index-based ETFs, most of which trade for a modest fee, offer an easy way to get exposure to various indices, from large well-known indices like the S&P 500 as a core holding to much lesser known indices that can be used tactically.

Cramer also railed against leveraged ETFs, a point that CFRA agrees with completely. Leveraged ETFs can be volatile and create risks for investors that hold them for longer than a day. However, inverse and leveraged ETFs had just $44 billion in assets as of May 16, according to etf.com data. This is just 1.5% of the total $2.8 trillion in assets and as such is hardly representative of the broader ETF industry.