We all know that a leisurely stroll through the forest can wind up being an intimidating experience.

One false turn while under those brooding, winding treetops and you could find yourself face-to-face with an unfriendly creature or two, or end up lost and on the edge of panic.

Just like a jaunt in the forest, investing in the timber sector requires some courage, and hopefully a good tour guide. Timber has brought steady and big returns to the deep-pocketed, but it's an investing path rarely traveled by the more common investor, mainly because of the millions of dollars in capital that are required to get in. (It's estimated that retail investments make up less than 1% of timberland assets.) The pulp and paper component of the industry, meanwhile, is notoriously cyclical, with big bounces up and down.

But we now have two ETFs on the market intended to help show us the way. These are the Claymore/Clear Global Timber Index (AMEX: CUT), which has been around since last November; and the iShares S&P Global Timber & Forestry Index Fund (NASDAQ: WOOD), launched just this past June.

It's easy to see the similarities between these two funds right away. Both have those cutesy exchange symbols, for instance, that can't easily get confused with ETFs of another commodity sector (say, the MOO or the COW of the ag-sector ETFs). They also each hold around 25 stocks. Yet, they are two distinct products that actually do differ quite a bit on composition and strategy.

So, which one is more favorable to investors? If a conclusive answer to that exists, the weaker of the two would no doubt fall out of the marketplace faster than you can yell "TIMBER!!!" But understanding how the two work will make for a much wiser investing decision. Let's take a look at this clash of the wood ETFs.

iShares Cheaper; Claymore More Worldly

iShares has the cost advantage, with a management expense ratio (MER) of 0.48% compared with Claymore's 0.65%. Not a huge difference, but worth noting.

A lot of the same names are covered in both portfolios, but there are substantial differences in their weightings. The iShares fund is more focused on U.S. names, while the Claymore fund takes a more international approach, which might partly explain why its MER is slightly higher. The top five holdings of Claymore (each with a weighting of about 4.9%) are all foreign names: Hokuetsu Paper Mills Ltd. of Japan; Oji Paper Co. Ltd. of Japan; Sumitomo Forestry Co. Ltd. of Japan; Holmen AB of Sweden; and Portucel Empresa Produtora of Portugal. Compare that with the top five holdings in iShares: Plum Creek Timber Co. (a U.S. timber REIT, with a whopping 10.2% weighting; Rayonier Inc. (another U.S.-based REIT, with a 9.5% weighting); Sino-Forest Corp. of China; U.S.-based Weyerhaeuser Co.; and Oji Paper Co. Ltd.

A glance at the top five holdings shows that Claymore has much heavier exposure to Japan, and perhaps more notable, iShares loves its REITS. Roughly a quarter of the iShares ETF portfolio consists of real estate investment trusts; Claymore, approximately half that.

These REITS do provide fairly direct exposure to timberland since they invest in the forests themselves and not just corporations in the business. But they also have high standard deviations because they are publicly traded. They do not, for example, provide as direct exposure to timberlands as timber investment management organizations (TIMOs). TIMOs are what institutional investors typically access the asset class with. Structured like private equity partnerships, TIMOs buy specific assets and companies, and are not publicly traded.

Calling these REITs a pure-play for the timber industry isn't accurate for yet another reason. Many of them have manufacturing operations, often held through taxable subsidiaries, so they still have some exposure to sawmills and paper mills.

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