Nothing new here in terms of risk but given how small caps have performed thought it might be useful for some. Essentially there view is it's too early for small caps over large caps but anyway:

• Small cap stocks underperform during a recession However, they outperformed as interest rates rose in 2021 and H1 2022, when inflation was low and not threatening. Speculation of a decline in rates saw small cap stocks underperform early in the new year.

• Small cap stocks do well in periods of broad margin expansion. However, when margins are under pressure as they were last year from rising costs, these stocks tend to underperform. Margin pressure is likely to continue this year due to rising costs and slowing demand making it difficult for small cap stocks to outperform for a sustained period. 

 Large cap stocks, generally do relatively well in recession. They often have a large market share in their industries and can more easily pass on costs. Large market share also protects revenue even as the macroeconomic backdrop is deteriorating. Large cap stocks tend to outperform as investor sentiment deteriorates. During these periods investors seek liquidity and that can easily evaporate during periods of risk-off sentiment. Sentiment improved a little this year at signs inflation was near its peak and large cap names have given up some outperformance. However, in the past month or so markets are again pushing back the expectations of the peak in interest rate.

Australian small caps also do well when economic momentum is positive