Wrong question, irrelevant, unless you use the extreme tilt to increase returns, not to lower beta exposure. Now if you do use it to increase returns then you have already decided to accept the tracking error so again that is irrelevant. Or should be. If it is not irrelevant you should not tilt to extreme, but that is true for any amount of tilting.
As to the last question, if you are risk averse the horizon is irrelevant, a high tilt, low beta portfolio makes the most sense IMO as it trades off cutting the left tail (which is lot more painful than the good right tail provides positive utility) for cutting off the right tail of the potential distributions. The good news is that it has historically cut the left tail much more than it has cut the right tail
As to when it would be expected to do worse, deflationary recessions, when the risks of small and value show up. But then your higher FI allocation does extremely well, and thus your left tail risk goes way down. Of course if beta is up a lot you are not likely to do as well. That's the trade.