While I believe large caps trade at more attractive valuations than small caps, I have not thought it a good idea to make a large over small cap bet. The reason being that the government was planning to sell their stake in AIG, Ally and GM. A few months ago they were hoping to raise $50 billion from the sale of all of these stakes. I thought $50 billion in new supply for the large cap market would be a lot to digest.
The AIG offering has passed and they did not sell nearly as much as they hoped. The Ally IPO was pulled and now the government might not sell their stake in GM as the price is too low. This might give the large cap market some breathing room. On a long term basis I believe large caps should outperform and the short term outlook is looking a lot better as well.